Mining Stocks, Gold and Silver

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 the effect of government policy on their investment universe. This has sent gold (GDX) and silver (SIL) miners to key support levels and oversold conditions not seen in more than two years. Today came renewed hope for precious metals and mining stock investors from Chairman Bernanke. The U.S. central bank is prepared to provide additional stimulus if the current economic slow patch persists.

Gold Stock Trades has stated unequivocally for several weeks that we have been programmed over the past two months to accept accommodative policies and a QE3. The recent downturn in the economic data such as declining home prices (XHB), 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 entering into the election year. Fed policies may be affected by political concerns in order to continue the accommodative measures of the Obama administration.

We assiduously monitored the all-important level of $52.50 for my readers on the gold miners (GDX) 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 or 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 they can to confuse us. Ergo a head fake break below this support occurred in an attempt to shakeout weak holders and transfer stock into strong hands. After these fake outs occur at support, powerful moves tend to follow, which we are currently witnessing.

In plain language, the all-important 200-day moving average that has been regained proves the long-term trend in mining stocks moves on a labyrinthian path; however, the path ascends upward over time.

Silver (SLV) 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, which is 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 may challenge April highs.

Gold (GLD) is making a record breakout and forming a bullish symmetrical triangle. This breakout may lead us to our $160 target originally forecast in late January. A high-volume breakout to the upside has occurred. These continuation patterns favor a confirmed upside breakout. Stay tuned, as I am carefully monitoring these potential breakouts in gold, silver and miners and potential breakdown in the U.S. dollar (UUP).

Jeb Handwerger
Gold Stock Trades

Disclosure: Long GLD, SLV and GDX.