Precious metals update

Not much has changed in the precious metals markets in spite of all the hoopla associated with the Bank of Japan meeting last week and the FOMC.

Both metals are trapped in sideways trading range patterns.

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As you can see from both charts, gold and silver had nice up-weeks but neither one has done anything conclusively.

The grinding consolidation patterns that have been in place since July continue.

Until we get a clear breakout, in either direction, they remain short-term oriented markets.

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You can also see from the most recent Commitments of Traders report ( which by the way does NOT COVER the days on which the BOJ and the FED made their respective announcements ) large hedge funds are liquidating long positions or staying relatively unchanged from the previous week. In short, there is not much excitement or new interest in gold and silver from the hedgies.

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Total open interest in gold has dropped nearly 150,000 contracts off its recent peak in early July. That is not a recipe for higher gold prices. In order for that to happen, the big specs will have to come back in a much larger way. Until they do, nothing is going to change much in both metals.

The continued fly-in-the-ointment for these metals has been the recent lackluster performance of the mining shares, especially some of the silver shares.

Here is the most recent chart of the HUI/Gold ratio, which as long-time readers of this site know, is the harbinger of what to expect in terms of the gold price. Notice how strong this ratio was all the way into August. Since that time however it has turned lower and has had trouble resuming its former uptrend.

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There is no doubt that the mining shares had led the metals higher through the first half of this year. If they are showing signs of stalling out, then future prospects for the metals will dim. To feel more comfortable about higher prices heading into Q4, I would want to see this ratio reverse its current downward trajectory.

You can see from the intermediate term chart of the HUI, that it remains inconclusive.

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Price is currently below both the 10-week and the 20-week moving averages with buyers unable to take price through either on a closing basis for the week.

The ADX line is moving lower indicating the cessation of the once strong powerful uptrend. The jury is out as to where they go next. The current setup has more bearish points going for it than bullish but thus far we have a sideways moving market, and not a downtrend. To improve this chart, I would need to see the price close above the 10-week moving average near 252.

The Daily looks a little bit better but is still a very mixed picture.

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Price is at least above the 10 day moving average and the 20 day but has failed to recapture the flattening 100 day.

The DMI lines are so contorted that they are of little help at this time. A closing push through this week’s high near 242 would be helpful but that GAP LOWER region coming in near the 50 day moving average is the biggie. It has to get through that to generate some real excitement. Right now there is too much uncertainty and a definite lack of conviction on the part of both camps, bull and bear.

I do not want to close this short analysis without a mention of First Majestic Silver. As I have noted, this stock had been a good bellwether for the price of silver during the sharp rally that sent it flying for the first half of this year.

There is not a single thing however that I can currently see on this chart that is the least bit comforting to the bullish cause other than perhaps it has not completely collapsed through the September 1 low and is so far managing to cling to its dear life above the 50% Fibonacci retracement level down at $10.82 or so.

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It is below the 10 day moving average, the 50 day and the 100 day. The 50 day is actually moving lower while the 100 day has flattened out and is perilously close to turning lower as well. At least the price is still above the long term 200 day!

One would think that if this stock is going to hold, it is going to hold here and now. If it does not and it fall below that September low and cannot immediately reverse course, it will be a foreboding signal for the price of silver itself.

For now, the bulls have got to close the price through the high of that horrific looking candlestick pattern made on Thursday of this week ( BEARISH ENGULFING PATTERN) to have any chance of resurrecting this stock. Until they do, the path of least resistance is lower.