Breakout in Precious Metals, Pay Attention to High Quality Explorers

The global debt crisis and the war on deflation by the Federal Reserve is causing precious metals to approach a key resistance level.  Gold is nearing a 52 week high while silver is close to breaking $19.  A break above these levels on high volume could be the beginning of a major move higher.

Gold and silver has been a safe haven asset.  Many concerns were expressed if miners would collapse in a weak equity market.  However, since the last Federal Reserve meeting, gold and silver has shown impressive relative strength compared to the overall market. The Federal Reserve discussed the increase of treasury purchases to keep interest rates artificially low. They also made it clear that every attempt will be made to prevent deflation.  This low interest rate environment and weak economic outlook which may continue for some time has encouraged investors to move money out of equities into safe haven assets such as gold and silver.  Gold and silver is also gaining interest as investors are realizing bond yields are too low and may be risky at these level.

The Fed’s greatest fear is deflation, high unemployment and a move into new lows in equities before the election.  If the S&P continues to deteriorate and unemployment data comes in negative, I expect an announcement of more central bank interventions to reflate the economy.  This next round of quantitative easing could cause a massive rush into gold and silver.

Many are concerned of the safety of fiat currencies during a global debt crisis.  The global economy is built on spending and investing.  Many investors were concerned if a downturn in the equity market would drag down junior miners.  These past couple of weeks have proved that is not the case.  Junior miners have made major moves higher.  A breakout into new 52 week highs in the miners is highly probable especially as the price of bullion breaks out.

The saucer (cup) and handle pattern is the chart reader’s favorite pattern.  Great performing stocks tend to have a strong base before an extended move.  Gold’s (GLD) pattern is very rare and this setup tends to be very profitable.  Similarly to what we saw in September of 2009, I expect a major breakout.  Is this pattern showing investors that a major event may be brewing?  Time usually tells the tale as news or events are announced after the breakout.

High quality gold and silver explorers are making major moves already.  It is important to pay attention to the gold and silver junior miner sector as we may be setting up for peak gold and silver.  High quality explorers with mineable assets should be followed as gold and silver discoveries are rare and producers are paying a premium for these properties.  These miners tend to have great leverage to the price of bullion especially if we see more government interventions and quantitative easing.

Yesterday, Fronteer Gold, a stock that I have recommended to my readers bought out Auex Ventures to control completely the Long Canyon Project.  The Long Canyon discovery is high grade and open pit. Fronteer is consistently coming out with impressive results from this project.  Long Canyon represents continued resource growth as it is expanding and open in all directions.

A major move in bullion could cause these explorers to make large percentage gains.  If you haven’t researched high quality junior miners yet, now is the time before a major move.

Disclosure: Long Gold and Silver Miners

2 Responses

  1. freaklemon
    Personally, I don't buy break-outs because IMO it's too late for me and I've already missed a large percentage of the move. I've been actively trading the gold stocks (and especially selling the options) for almost ten-years now and it provides me with a consistent second income. Anyhow, I would be cautious about buying hand over fist right now, unless you can handle the good possibility of seeing some red in your account for the interim and you don't sell out if we have a scare or two to the downside before the fall and winter runs. In the short term, this gold trade right now is way too easy to get decently priced buy-ins and financial tv is running its mouth about the metals stocks and momentum is waning for the week. Of course, there's always a chance of a decent rally, but any such strokes of luck can set up an investor for a beating the next time when buying at higher risk set ups. Buying equities with STOCH, RSI, ROC (rate of change) nearing overbought conditions and it is undisciplined. Actually, I attribute my consistency by buying gold equities (by way of agressively writing put contracts to get better prices), when the gold newsletters are frightened and the indicators are cratering. Mark Hulbert's bullish index might be included in your scan. Right now, I've already laddered in the sale of some out of the money covered calls for September. Good trading to all.
  2. Jeb
    Take a look at my article on gold from July 27th where I bought gold at support. There you can see my strategies. It is important to get an overall idea of my methods before coming to a conclusion.
  3. [...] term support and also wrote articles discussing the coming break out in gold and silver from the cup and handle pattern.  Since these moves gold and silver have made historic and powerful [...]

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