Is a Scorching PM Sector Rally Ahead? :: InvestMacro

The PM sector did exactly as predicted in the article WHEN THE RUBBER HITS THE ROAD – THE SCORCHING PM SECTOR RALLY AHEAD posted on the site about a week ago, with breakouts by metals and stocks last week from Flag / Pennant consolidation patterns into powerful uplegs. The purpose of this update is to inform you of the fact that THE REALLY BIG ACTION HASN’T EVEN STARTED YET, but it will soon, and we will proceed to see exactly why in this update.

Let’s start by reviewing what happened. Our first chart is the 6-month chart for gold and it’s interesting to see that while silver and PM stocks raced ahead last week, gold’s new upleg has barely gotten started and it has yet to break above the resistance at its early April highs — it will though and when it does it is expected to soar towards the upper rail of the uptrend channel shown and that implies further strong gains by silver and PM stocks in the days and weeks ahead.

Silver, however, showed no such hesitancy and broke out of its bull Flag and raced ahead, clearing the important psychological $30 barrier almost as if wasn’t there and as we can see on its 6-month chart it looks set for further gains as it has a ways to go before it reaches the upper rail of its uptrend channel.

We correctly anticipated this development and bought a raft of 6 SILVER STOCKS POISED TO ADVANCE about a week ago, all of which are up.

This break above $30 by silver was an important technical milestone for as we can see on the 20-year chart it means that it has cleared the important resistance established at this level back in 2020 and 2021 which means it now has its sights set on its 2011 highs at about $50 as its next major objective.

PM stocks meanwhile continued to forge ahead, especially on Friday, building on the breakout from the bull Pennant of May 9, as we can see on the 6-month chart for sector proxy GDX, which shows that they have plenty more upside before they arrive at the upper rail of their uptrend channel.

The 5-year chart makes clear the reason for the claim at the start of this article that THE REALLY BIG ACTION HASN’T EVEN STARTED YET, which is that, despite the gains so far, GDX is still some way from breaking out of the giant Head-and-Shoulders continuation pattern shown on this chart. The real action will start once GDX breaks above not just the neckline of the H&S pattern (the red line) but above the band of resistance that marks the upper boundary of the entire pattern and dates back to the 2020 highs.

Sentiment indicators continue to show that there is still little interest in the sector and a lot of skepticism, which is of course very bullish. This will change and change fast once GDX breaks above the key resistance, with a lot of investors coming down off the fence and piling in, driving a robust rally.

The 20-year chart for GDX is most interesting as it shows very clearly why the PM sector has such a huge upside from here. One is that GDX is still way below its 2011 highs, and this is despite gold having made clear new highs.

Gold is shown at the top of this chart and we see that it is romping ahead with a now very big positive divergence relative to PM stocks. This isn’t the way it is supposed to be — traditionally, during sector bull markets, stocks way outperform bullion for the obvious reason that with their high fixed costs, mines become vastly more profitable as gold continues to appreciate. What this means is that PM stocks have a lot of catching up to do — and the more gold (and silver) ascend, the more catching up there will be to do.

This is why PM stocks are expected to rip higher once GDX overcomes the resistance shown on this chart and the 5-year earlier.

Lastly, we will take a quick look at the dollar because of the increasing likelihood of a dollar collapse, which would be a big driver for strong gains not just by gold and silver but across the commodity complex generally.

So, let’s now take a quick look at a 20-year chart for the dollar index. On it, we can see that, so far, it hasn’t collapsed and has actually held up very well in the circumstances. In looking at this chart, we should keep in mind that as it is an index, it is a measure of the value of the dollar relative to other currencies and since all currencies are losing purchasing power, it doesn’t mean that because the dollar index has been more or less moving sideways since early 2023 it hasn’t lost purchasing power — it has a lot.

Going forward, if we see widespread dumping of Treasuries coupled with a buyer’s strike and the Fed aggressively monetizing new issues, as looks likely, it means that the dollar and the dollar index will drop and drop hard. This is why the sideways range of the past year or so is suspected to be some sort of bear Flag that will lead to renewed severe decline, as shown, and if it does, gold and silver and commodities will generally soar.

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The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund’s opinions are his own, and are not a recommendation or an offer to buy or sell securities. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund’s opinions on the market and stocks cannot be  only be construed as a recommendation or solicitation to buy and sell securities.