Hidden Signs For Precious Metals

Gold, silver, and mining stocks moved higher yesterday, even though the USD Index moved higher as well, which had bullish implications. Based on the closing prices and the rally in mining stocks that took place in the second half of yesterday’s session, it seems that closing our extra-large short positions and taking profits off the table early in the session was a good idea. However, that’s not the only thing that changed in the precious metals market and the area surrounding it – some signs are not as clear, but just as important. Let’s take a closer look at the charts for details (charts courtesy of http://stockcharts.com).

The first chart features the breakout in the Nikkei 225 Index.

(Click on image to enlarge)

1_cyJdQG0.png (1565×1157)

Why should one care about the above chart at all? Because the Nikkei has been strongly negatively correlated with gold. The strength of the phenomenon has been the strongest since 2012, but it’s also been present previously. The major tops and bottoms in the Japanese stocks and gold are not perfectly aligned, but they do correspond to each other, more or less.

Why is this correlation significant? Well, correlation doesn’t necessarily imply causation, but since both markets are connected to the Japanese yen, it doesn’t seem that the correlation is accidental. Consequently, a bullish outlook for Japanese stocks makes the outlook for the gold price bearish.

The thing is that we just saw an important breakout (above the declining blue resistance line) in the Nikkei and thus, the outlook just became bullish from the technical point of view. This doesn’t need to have immediate bearish implications for gold and the rest of the precious metals market, but it does suggest that the next big move is likely to be to the upside in the case of the Nikkei and to the downside in the case of gold.

Another thing that is not often discussed is the link between the financial stocks and gold.

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The above estimations are based on the information that we have available today (Oct. 27, 2016). We will be monitoring the market for opportunities and report to ...

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