Posted 21st September 2023

Are Gold and Silver Percolating For a Big Move?

gold silver percolating for big move

The chart below shows gold (GLD), silver (SLV) and mining stocks (GDX). All three segments of the precious metals sector have been in an uptrend since the fall of 2022, though if you are ‘overweight’ on the junior exploration stocks, as am I, it might not feel like it.

slve gld gdx graphs show price of gold and price of silver

A subscriber asked me if I had any thoughts on when the juniors might make a move. It’s a good question. Unfortunately, it’s impossible to forecast or predict when a market, sector or stock will make a directional move. All we can do is look at the attributes that accompanied a move higher in any specific sector or stock in the past.

A look at previous sector bull moves

In the bull moves of 2016 and 2020, gold and silver bottomed in December 2015 and March 2020 and headed higher. The mining stocks took off running both in January 2016 and March 2020, shortly after gold and silver bottomed. In both cases, the juniors led the way and by far outperformed the producing mining stocks. In 2008, gold and silver bottomed in late October and the mining stocks followed suit in early November – the juniors lagged a bit.

It’s my contention that the rallies in 2016 and 2020 were short-lived – about seven months each – because hot money flooded into the sector both times. This was evidenced by the sharp move higher in the juniors. Hot money is generally considered a “low quality” investment flow used to take advantage of the highest short-term interest rates – and it can leave as quickly as it enters the market. The two bull moves mentioned were thus low-quality rallies, in contrast to 2008 when this “hot money” took a while to find the juniors; the bull move that started back then lasted nearly three years.

Setting up for a move higher

Silver bottomed in early September last year. At the time, GDX started moving higher, while gold started rising at the beginning of November 2022. The juniors have lagged, although a few have moved.  If you discount the brief hit Calibre Mining (US – CXBMF, TSV – CXB.TO) endured at the end of October last year and measure its “bottom” from the date at which it almost retraced the entire price smash, it moved from 61 cents to as high as $1.15 in late December.

The trading “action” in the sector feels like it’s setting up for a strong move higher. The Comex and LBMA banks have been unable to push gold below $1900 after it roared over $1900 in early March this year (green horizontal line):

gold price 2 year view daily

The effort to get it back under $1900, and silver below $22.50 this summer has been aggressive, as reflected by the highly volatile intra-day trading primarily during COMEX paper trading hours. So far, the effort has failed.

Gold has managed to hold just above its 200 daily moving average (DMA). Historically, when gold is in a bull cycle, a correction to the 200 DMA has preceded a powerful bull move. Finally, the RSI and MACD (not shown) are “oversold”, but have started to move higher. 

Is a Q4 breakout incoming?

In conjunction with the factors mentioned, I think there’s a good chance that gold could break through the $2,060 barrier and silver above $27 per ounce in the fourth quarter of this year. If that happens, both metals – along with the mining stocks – could be setting up for a “high quality” bull move relative to the 2016 and 2020 rallies.

Furthermore, I think that as long as the bull move continues in gold and silver, the mining stocks could start moving sometime this fall (Sept/Oct/Nov). If this scenario plays out, there’s a good chance that we could see some spectacular moves in the riskiest junior micro-cap stocks.

Dave Kranzler is a hedge fund manager, precious metals analyst and author. After years of trading expertise build-up on Wall Street, Dave now co-manages a Denver-based, precious metals and mining stock investment fund.

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