- The junior gold miners have been breaking out in June, up over 14%, while the S&P 500 is up 1%.
- The three-month downtrend line, 50-day and 200-day has been broken to the upside.
- Huge cash positions may rotate from overvalued and overbought S&P 500 which is rising on light volume.
- Volume is soaring in the junior gold miners in 2014. This may indicate accumulation from institutions.
- Discussion of five possible reasons for this recent move higher.
The gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) prices may be reversing over the next couple of weeks. The junior miner gold ETF (NYSEARCA:GDXJ) is reversing above the 50-day moving average and breaking above its recent three-month downtrend.
When the huge cash positions waiting on the sidelines or taking profits in the equity market rising on low volume return to the ignored resource sector, the gains could be huge. Already the volume in GDXJ in 2014 has jumped, outpacing 2012 and 2013. On the other hand, the S&P 500 has been rising on light volume, which is often a warning sign that the extended rally is getting exhausted.
This indicates to me that possibly the large institutions are accumulating the juniors after all the retail investors jumped ship. Prices could jump rapidly in the Toronto Venture Exchange where most of the legit junior miners are traded. These small cap juniors could gap higher as the major institutions are hardly exposed to the mining sector at all.
It appears that some of my charts are showing a potential reversal in the precious metals. Get ready for an incredible bounce higher in precious metals. Here are five reasons why.
1) Increased M&A in the gold mining space and equity investments in junior miners should tell you where the smart money is headed. Take a look at the recent Osisko deal where Yamana (NYSE:AUY) outbid Goldcorp (NYSE:GG) for their Quebec mine as a recent example and a straw in the wind. Look at Gold Resource Corp. (NYSEMKT:GORO) and Hecla's (NYSE:HL) increased investments in the junior space.
2) Gold and silver are trading way below their three-year trailing averages, which indicates that the price is way oversold, and a major bounce is likely. Furthermore, gold is priced below production, putting strain on future supply as miners mothball marginal projects.
3) The equity markets are too high, reaching extreme overbought and speculative levels similar to 2007 before the crash. A correction in equities sparked by fears of deflation could spark the return to gold and silver as a safe haven, as Central Banks may continue to push negative interest rate policies similar to what the ECB recently announced.
4) Gold and silver have been basing for three+ years, and the junior miners have been in arguably a seven-year bear market reaching historic oversold levels.
5) Watch geopolitics, especially the Ukrainian-Russian and the Middle East situation in Iraq, Libya, Syria, Iran and Turkey. If tensions escalate, it could send metals, commodity and oil prices soaring. Do not be surprised to see further chaos and increased violence as the U.S. pulls its troops out of the region.