Recently, investors have been concerned over the possible effect of the expiration of QE2. They have been looking for a clear mission statement in order to understand how government policy can impact their investment universe. This has sent gold and silver miners to key support levels and oversold conditions not seen in more than two years. Today, Federal Reserve Chairman Ben Bernanke brought renewed hope for precious metals and mining stock investors. The U.S. central bank is prepared to provide additional stimulus if the current economic slow patch persists.
My firm has stated unequivocally that we have been programmed over the past two months to accept accommodative policies and QE3. The recent downturn in economic data such as home prices, increased unemployment and decreased manufacturing, indicates that we are being prepared to accept further bailouts and money printing measures. The Fed has already invested trillions of dollars in order to stabilize the capital markets. We are heading into the election year. Fed policies may be affected by political concerns in order to continue the accommodative measures of the Obama administration.
We have assiduously monitored the all important level of GDX $52.50 for several weeks. It was important that this support held for the long term uptrend. We saw a head fake, or bear trap through $52.50, the 2011 low. The new low was not confirmed by our indicators. This signaled a potential turning point and head fake.
The market will often do what it can to confuse us. Ergo, in an attempt to shake out weak holders, a head fake break below this support occurred. After these fakeouts occur at support, powerful moves tend to follow, which we are currently witnessing.
In plain language, the all important 200-day moving average, which has been regained, proves the long term trend in mining stocks moves on a labyrinthian path; however the path ascends upward over time.
Silver is showing signs of demand as it regains its 50-day moving average. Notice the 200-day moving average continues to catch up with the price during this consolidation. This recent pullback has been quite healthy for the silver market and has wiped out a lot of speculative hedge funds and day traders who bought at the wrong time when it was overbought and extended way above the 200-day moving average. Notice the decreasing volume, showing that the enthusiasm of profit taking and selling is waning.
An ascending triangle has been forming and I believe we may see a breakout to the upside where we can challenge April highs.
Gold is making a record breakout and is forming a bullish symmetrical triangle. This breakout may lead us to our $160 target, originally forecasted in late January. A high volume breakout to the upside has occurred. These continuation patterns favor a confirmed upside breakout.
Disclosure: I am long GLD, SLV, GDX.