Is The Precious Metals Sector Set-Up For A Big Run?

by Dave Kranzler, Investment Research Dynamics:

I had not noticed until I looked mid-day today (Thursday, Aug 24th) and saw that the HUI index was above 200. It ended up closing just above 200. I want to see it hold above 200 dma and move higher from there before I get excited.  But the chart has become mildly bullish.  GDX, which is a larger representation of the large-cap mining stocks, looks even more bullish that the HUI:

gdx.png

I’m not big advocate of using chart “technicals” to forecast the next move in any market, but many traders, hedge funds and investors use them and they can become “self-fulfilling prophecies.” You can see that GDX (same with HUI and GDXJ) has been trending sideways since early February in a pattern of rrowing volatility. Chartists look at this as a pattern that predicts a big move in either direction. I’ve drawn in a white downtrend line through which the GDX appears to have climbed over. It’s also now above its 50/200 dma’s (yellow and red lines, respectively). I’m not ready to declare a “break-out” yet, but I’m feeling optimistic going into the eastern hemisphere’s biggest seasonal period for accumulating physical gold:

gold.png

The gold chart above is a 2-yr daily for the price of gold as represented by the Comex continuous gold futures contract. Since April the price has been hitting its head on $1300. I remember when gold attempted to break above $400 in late 2003/early 2004. It took several attempts to get up and over $400. Around that time Robert Prechter had predicted that gold would drop to $50. How well did Prechter’s charts work then?

There’s one of many catalysts away from sheer eastern physical demand or an errant tweet
from Trump that can push gold a lot higher in conjunction with the U.S. dollar index quickly falling a lot lower. The most pressing issues currently are the rising geopolitical tensions between Russia/China and the U.S., the upcoming Treasury debt-ceiling battle and, what is becoming more apparent by the day, a deteriorating U.S. economic and financial system.

Speaking of physical demand, extremely negative ex-duty import premiums have been
observed in India. Many of you may have read standard gold-bashing propaganda pointing to that as evidence that India’s new sales tax is affecting gold demand. But quite the contrary is true. As it turns out, there was a loop-hole in the Goods and Services Tax legislation that scrapped a 10% excise duty on imports from countries with which India had signed a Free Trade Agreement. Currently Indian gold importers appear to be sourcing gold from South Korea, which enables buyers to avoid the 10% import duty entirely. Until the Indian authorities move to close this loophole, we won’t have good feel for how much gold is flowing into India until the official monthly statistics are released. Based on the import trend in June and July, there continues to be an usually large amount of gold imported into India this summer. It will likely pick up even more as we head into the India festival season this fall.

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