The HUI:gold ratio moved back to the level that it broke below yesterday, without invalidating it. The medium-term implications remains bearish. We saw a similar pullback (without an invalidation) in the general stock market. Without an invalidation, though, both intraday pullbacks don't change anything.
The mining stocks declined initially yesterday but reversed direction in the middle of the session and finally closed slightly above previous day's close. The volume was not huge, so it may or may not be a reversal pattern, but it seems to us that it's more bullish than not for the very short term (a week or so).
On an intraday basis, gold moved below the neck level of the head-and-shoulders formation, but it didn't stay there for long - it closed visibly above this level, thus invalidating the breakdown in terms of intraday prices. In terms of closing prices, the head-and-shoulders formation was already completed.
Silver / SLV invalidated the move above their 20-day moving averages, which by itself is a bearish signal.
Yesterday, we mentioned that the breakdown in the HUI:gold ratio was an important - yet generally overlooked - factor that is likely to impact precious metals prices in the medium term. Actually, it's not the only one. The ratio between the yields of 20-year treasuries and 1-year treasuries declined sharply recently. Such actions used to mark local tops and precede big declines in the recent past. We will elaborate on this topic in tomorrow's Premium Update, but today it's safe to summarize by saying that the bearish outlook for the medium term is confirmed in one more way.
The USD Index rallies yesterday, but then corrected about half of what it gained early during the session. At this time the USD Index remains almost at the June 2013 low (very close to it). This by itself doesn't change much so far, because we didn't see the breakout above this low, but what's particularly interesting is the lack of decline in the mining stocks given this decline. While miners were underperforming gold and the general stock market recently, they were strong on Wednesday given dollar's move up.
Summing up, the very short-term strength in the mining stocks combined with an invalidation of the breakdown in the case of silver and a mixed situation in the gold market as far as the head-and-shoulders formation is concerned (completed in daily closing prices' terms, but not completed in case of intraday prices) leaves us with an unclear picture for the short term and a bearish outlook for the medium term.
To summarize:
Trading – PR: No positions.
Long-term investments: A half position in gold, silver, platinum and mining stocks. As far as long-term mining stock selection is concerned, we suggest using our tools before making purchases: the Golden StockPicker and the Silver StockPicker
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 October, 2013 and we will send additional Market Alerts whenever appropriate.
As a reminder, Market Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent we will send you an additional small alert before posting the main one.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
