Silver and gold are under pressure again on Friday, as investors are still preferring slightly risk-on assets despite the fact that coronavirus infections around the globe are still alarmingly high and Congress has been unable to reach an agreement on providing any additional relief for Americans. Now some investors are wondering if this is topping action or still just a pullback.
While silver and had an incredible run higher throughout July, the metals have since pulled back, with silver currently trading down 6% on the day as of just after 1PM EST Friday, and gold off 1.3%, still nearly $150 below its recent high, giving some analysts pause as to whether this is just a pullback or something more sinister.
The technical analysts displayed by momentum readings in the underlying ETFs were even more worrisome, according to Bespoke. The RSI readings on key metals ETFs like the SPDR Gold Trust (GLD) and iShares Silver Trust (SLV) notched records around gold’s Aug. 6 peak, the firm said Wednesday.
“Also, we look at the daily sentiment index, which measures bullishness amongst futures traders, and it got to 93% bulls last week in gold. In fact, its nine-day average was over 90%,” Matt Maley, chief market strategist at Miller Tabak said. “Again, when you get these kinds of extremes, it takes more than just a few days for it to work off.”
“Even though its long-term fundamental picture looks intact, sometimes on Wall Street when it gets so extreme, you see a reversal and one that lasts for more than just a few days,” Maley said of gold.
Other analysts like Jim Wyckoff are still bullish on silver however, cautioning investors that support will need to hold for the market to move higher.
“September silver futures bulls have the firm overall near-term technical advantage, but need to defend what is the latest “reaction low” in the still-existing price uptrend on the daily chart—this week’s low of $23.58. A drop below that level would negate the price uptrend to suggest a near-term market top is in place. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $30.00 an ounce. The next downside price objective for the bears is closing prices below solid support at $23.58. First resistance is seen at today’s high of $27.885 and then at $28.00. Next support is seen at $26.00 and then at Thursday’s low of $25.355.”
Michael Bapis, managing director of Vios Advisors at Rockefeller Capital Management, largely agreed with Maley, but recommended looking into gold miners for this still looking to stay in metals.
“Gold miners is probably the best way to play this space for the near future because they are companies, they’re mining … they’re diversified in the space,” Bapis said. “But I just think that the actual gold commodity … and silver, for that matter, has just run up too far, too fast for no real fundamental reason.”
ETF investors looking for more upside can get gold exposure on a pullback using GLD and other gold ETFs, or via miners ETFs like the following funds:
- VanEck Vectors Gold Miners (NYSEArca: GDX): seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE® Arca Gold Miners Index®. The index is a modified market-capitalization weighted index primarily comprised of publicly traded companies involved in the mining for gold and silver.
- Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG): seeks daily investment results, before fees and expenses, of 200% of the daily performance of the MVIS Global Junior Gold Miners Index. The index includes companies from markets that are freely investable to foreign investors, including “emerging markets,” as that term is defined by the index provider.
- Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT) : seeks daily investment results, before fees and expenses, of 200% of the daily performance of the NYSE Arca Gold Miners Index. The fund invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements, and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. The index is comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in the mining for gold and, in mining for silver.
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