Market AlertMarch 7, 2013, 9:18 AM
The GDX ETF was up $1.48 yesterday on very (!) strong volume. It actually declined $0.48 in the after-hours trading, but we don't think that the implications thereof are significant. After-hours trading is used by only a limited number of investors, the liquidity is low, spreads are high - all in all, the foundations of the market price efficiency are not in place. You will find more information on the.
Consequently, the price itself is not that informative. If the move was, say $10 higher / lower, then we would be paying close attention, but the $0.48 move is something that we see on a more or less regular basis during trading hours. In terms of the after-hours trading, it seems that yesterday was "business as usual".
Yesterday we wrote that "the HUI Index didn't move to the 333 level, but it was relatively close to it, moving to 337.29. At this time the bottom could be in or we could see a couple more days of weakness before the bottom is reached." After the rally on huge volume later on that day, it seems that likely was "close enough" for the bottom to be formed. Also, the XAU Index had already reached its long-term 61.8% retracement.
The USD Index didn't decline at the cyclical turning point, or close to it and the turning point didn't work this time. However, it's not that important, because: gold and silver have actually stopped reacting to the dollar's rally since the cyclical turning point (thus the turning point did work in a way) and because the USD Index is overbought and likely to decline on a short-term basis even though the turning point is behind us. In particular, we are glad to see gold rallying despite the dollar's rally on Thursday.
If you recall our discussion on the ratio of volumes between the GDXJ and the SPY ETFs, you know that it signaled a major buying opportunity a few weeks ago. In the Feb 19 Market Alert we wrote the following:
"In Friday's Premium Update, we featured the GDXJ:SPY ratio (junior-mining-stocks to the general stock market ratio) and wrote that a spike high had been seen shortly before in the ratio of volumes between these ETFs. These spike highs in the ratio of volumes heralded local bottoms many times in the past."
You can see the chart in the.
The reason we mention all this is that yesterday the all-time high was exceeded by about 30%. That's a very important and bullish signal - it would be significant at any time but since we see it after a big decline and among negative sentiment, it's very bullish.
Consequently, we think that going long mining stocks with your speculative capital is a good idea right now.
Moreover, if we see an additional sign of strength, we will consider doubling the size of speculative long positions in the precious metals sector.
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Full speculative long positions are suggested for gold, silver and mining stocks.
Naturally, we suggest remaining in the precious metals market with your long-term investments. In particular, don't let the bearish analyses, declining prices or sideway moves make you sell your long-term precious metals investments. It's a good time to be adding to long-term gold & silver investments, not a bad one.
As always, we'll keep you updated should our views on the market change. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) at least until the end of March, 2013 and we will send additional Market Alerts whenever appropriate.
Przemyslaw Radomski, CFA