Analyzing Gold's Overbought Status and Market Peaks

Jordan Roy-Byrne, CMT, MFTA, Editor and Publisher of The Daily Gold, and author of the book “Gold & Silver – The Greatest Bull Market Has Begun – A Once In A Lifetime Investment Opportunity”, joins us to review his medium-term technical outlook for the precious metals space, the potential paths towards an interim top and corrective move in the gold and silver stocks, and the bigger-picture intermarket analysis themes that complicate this path forwards.

 Key topics discussed:

The shorter-term to medium-term technical pattern in gold is a bit murky, on whether:

1. it will just make a $200-$300 run higher and then top out, or…
2. if it has the energy to blast up past $4,000-$4,200, completing the logarithmic extension of the longer-term 13 year cup and handle pattern breakout, before putting in a more meaningful corrective move, or…
3. if what we are seeing now is really more of a false breakout that is already hitting buying exhaustion and is going to run out of steam in these overbought readings.

When looking at the gold stocks, via GDX and GDXJ, the breadth signals that 75% of stocks inside these ETFS have been making new 52-week highs over the last week, coupled with overbought readings on the longer duration charts, has him watching for the conditions where the gold stocks may quit advancing as aggressively, and top out and turn down before gold does.  He notes that we are definitely not in the early stages of this move, but rather we are much closer to the end of this current move up in gold stocks, before reaching an area where pricing will roll over and consolidate to the downside for a period of time.

What complicates this outlook is that the gold stocks in the GDX and GDXJ just broke out against the 60/40 portfolio of US general equities and bonds, and that there is a lot of institutional capital still very underweight this sector that wants to come in and get into position.  This may mean that pullbacks are immediately bought up, and that corrective targets are not hit.  He mentions that the recent corrective move in gold didn’t even reach the 200-day moving average as an example before ramping back higher again.   This is all symptomatic of a larger bull market process underway.

With regards to silver, the pricing has approached overhead resistance at the $41-$42 level as anticipated, and he is watching here to see if this is where the metal may pause and regroup at a lower level, before building the energy to make it definitively through the $42 resistance zone in the move to test the all-time high at $50 at a later date.

He points out that a lot of the silver stocks have been going through the roof with rhino-horn moves, and that many of these stocks should be “rented but not owned for the longer-term.”   There is a lack of quality silver-focused projects and companies of size, and many “base metals companies parading around as silver stocks,” and that investors should be careful in this space and know what they own and what the value drivers are.

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