Precious Metals Mining Stocks: Long- and Short-Term Outlook

Based on the June 29th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

Today’s market session is very volatile, not only in case of euro, dollar and stock indices, but also in case of precious metals. The rally in the mining stocks is much less significant than one might expect based on gold’s and stocks’ rally. Should this be of concern to precious metals investors?

In today’s essay, we will provide you with two mining-stock-related charts: one focusing on the long term and one that provides a short-term signal.

Let’s begin with the former (chart courtesy by http://stockcharts.com.)

In the Toronto Stock Exchange Venture Index (which is a proxy for the junior miners as so many of them are included in it), we have a significant bearish signal. Prices have moved below the neck level of the bearish head-and-shoulders pattern. The pattern is: huge, clear, and completed and the implications are very bearish for those holding juniors and for other precious metals investors as well.

We created a downside target level based on the size of the head in this formation and it is close to the 2008 low. It’s also much lower (40% or so) than current price levels. There is clearly much room for further declines.

However, not everything is bearish about the mining stock sector. For instance, we have just seen a bullish signal from one of our in-house developed indicators that.

The indicator moved above the upper dashed line and this signal has bullish implications. Please note that in April it marked the beginning of a consolidation and in other cases (and in previous cases since the 2008 bottom) it signaled local bottoms.

Consequently, based on the above chart, a rally seems likely. Then again, metals and mining stocks have already moved higher today based on euro’s rally. Consequently, the rally – or at least most of it – that the indicator suggested may already be behind us. Another small move up will not surprise us either.

Summing up, the outlook for miners remains bearish for the medium term (bullish for the long term) but, a temporary move up is quite likely. At this time, however, this move up, is not something that is signaling a change in the trend – based i.a. on the negative situation in the TSX Venture index, it’s rather a pullback within the decline.

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Thank you for reading. Have a great weekend and profitable week!