Silver & Gold Miner Stocks: A Higher Low

Is the final low in for the precious metals miners' 3-year bear market...?

 

The GOLD & SILVER miner stocks have begun another leg higher, reckons Jordan Roy-Byrne, CMT at TheDailyGold.com, because the evidence strongly supports the view that they have formed a higher low.

 

Only time will tell for sure but the evidence is quite strong. It seems that every analyst was calling for a July low. I felt strongly that the miners would make their next low after gold broke below $1200. I was far more confident in the bullish case at the June 2013 and December 2013 bottoms. I was even skeptical after Tuesday's upside explosion. However, the weight of the evidence today argues that the miners have made a higher low and are starting their next leg higher.  

 

Let's start with the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ), which is showing leadership. I want to highlight three bullish points. First, the volume has been huge. Weekly volume was a record. Daily volume was near records the day before GDXJ bottomed and the day it bottomed. It appeared the miners could head lower. GDXJ then gapped up and closed at the high of the day on huge volume. Strength was followed by strength.

 

The second point is that last week's explosions in gold and silver miner stocks came with the metals themselves being up less than 1%. The shares showed excellent relative strength at a time when the metals are in a weak technical position. Third, note that GDXJ is set for a 12-week high. That is quite a bit of strength only two weeks after a low. The initial rebounds from the previous two lows were much weaker in size and intensity.

 

 

Meanwhile, history argues it is very unlikely that the bear in the miners isn't over. The current bear would be the third longest ever. The two longest bears were the longest because their price damage was mild until the tail end. It's not impossible that the current bear could roll over to a final low. We thought that was happening last week. However, given the aforementioned strength in the sector, it seems highly unlikely.

 

 

The action in silver bullion and the silver miner stocks also leads me to believe that the near-term risk reward strongly favors the upside.

 

We've been waiting for silver to break below $18 because we believe it would mark a clear end to its bear market. Silver recently closed at an 11-month low and the same week closed Friday at $18.82, which marked a new weekly low for the bear market. Silver prices have since failed to decline further. The metal has started to rally and it could spark a short squeeze. Gross short positions reached a new all time high in each of the past two weeks.

 

Moreover, the chart below shows the positive divergence in the silver stocks. While silver tested its June 2013 low, both Global X Silver Miners(NYSEARCA:SIL) and PureFunds ISE Junior Silver Miners (NYSEARCA:SILJ) were trading well above their lows.

 

 

The weight of the evidence argues that precious metals shares and likely silver have seen their low and are headed higher. GDXJ and silver peaked more than three years ago. GDXJ declined 81% while silver's bear market was nearly its worst excluding its 1980 collapse. The outright strength in the stocks cannot be disputed. It was not a one day event. The stocks led the metals down and are now in position to lead the metals higher.

 

With that said, the only fly in the ointment for me is gold, which is technically weak and still carries some speculative interest. I would not be surprised to see it break lower before the entire sector moves aggressively higher. Regardless, our view is that gold and silver miner stocks have formed a higher low and that pullbacks should be bought.

 

They don't ring a bell at the start of a new bull market and by nature analysts and pundits won't be in agreement when it starts.