How Much Upside Do Precious Metals Have?

1172_Gold Bar 2

Tension between Russia and Ukraine are high, sending precious metals significantly higher as a safe haven bid.

The question of whether this has the potential of becoming World War III or if the conflict is just a mere diplomatic disagreement are now the two polar opposites pulling on precious metals’ prices as the significant rally Monday was countered with a sizable pullback Tuesday.

The trend in the metals’ prices since December suggest the market is taking the conflict seriously, but how much more upside should metal owners expect?

Gold and Silver – Emotionally Unstable

The metals markets are driven as much by sentiment as they are by rationality.  The general public is the best example of this as they generally allow their emotions to make trading decisions for them more than they do ration or reason.

WATCH: How we used the charts to profit just before Apple’s 8% earnings decline)

Case in Point: When the public was most bullish the metals (and emotionally euphoric) it was leading up to the 2011 top, just before the metals’ prices peaked.  When the speculative public is bearish the metals (as they were in April and December 2013), the odds greatly increase that the metals are bottoming.

History shows that typically the public is wrong at key market turning points.

We discussed this most recently in our January 2014 ETF Profit Strategy Newsletter when we included the following chart and commentary as to why we were actually bullish the metals when everyone else was so bearish.  For one, the speculators (public) were extremely bearish the metals at the end of 2013 and the traditionally “smart money” was bullish, giving us a reason to also be bullish.

Gold Committment of Traders - Smart Money

On 12/20/13 in that very same newsletter edition we alerted our subscribers about our buying the March $112 GLD call options for $640.  Within two months we exited the trade for a combined 66% gain.

We were so bullish (NYSEARCA:GLD) on the metals we followed up that suggestion with numerous others for investors to jump aboard the metal’s trend change:

  • On 12/25 via our Weekly Pick service we suggested buying the Market Vectors Gold Miners (NYSEARCA:GDX) at $21.  Since then we have moved our stops up, locking in 10%+ of profit in two months.  On paper that trade is now up over 24% as we now contemplate moving up stops and locking in more profit
  • On 1/23 in the following monthly Newsletter we focused on the gold miners in much more detail outlining buy signals for Barrick Gold (NYSE:ABX) @ $20 (now up 3%), Agnico Eagle (NYSE:AEM) @ $30 (now up 9%), and Kinross Gold (NYSE:KGC) @ $4.80 (now up 7%).

Being bullish on the metals when the speculative public was bearish has worked out well.

What about Now?

The rally in gold and silver has again caught the attention of the public, but that is not necessarily a sell signal, not yet anyways.  It is however a reason to be watching for a top, not a bottom.

Combining our knowledge of sentiment with the charts, has us watching a key support level for silver (NYSEARCA:AGQ) and gold (NYSEARCA:NUGT) that will help warn when the uptrend is finally taking a breather.  For now the trend in the metals (NYSEARCA:USLV) is up, but it is getting long in the tooth.

By following price and public sentiment first and foremost, rather than guessing whether the threat of war in the Ukraine will escalate or dissipate allows us the liberty to focus solely on what matters to investors, the price of their investments.

Eliminating the noise in the markets can help eliminate the emotional responses, and doing that is a big step to finding profit opportunities.

The ETF Profit Strategy Newsletter focuses on the technicals and sentiment of the markets to help keep investors on the right side of the trade along with finding high probability profit opportunities.  Gold and silver sentiment helped warn us of an impending trend change in the precious metals. Now we are watching for that sentiment to reach its next bullish extreme.

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  1. grant8 says:

    Chad: Nice scalp on GLD and GDX. I like the smart money/dumb money analysis and it definitely helps with good entry points.

  2. Matt says:

    Love the illustration Chad. Especially like your quote “History shows that typically the public is wrong at key market turning points.”

    You need to bold/highlight/underline that comment!

    Goes along with the old adage “The Masses are Asses!”

  3. Primevestor says:

    It’s very hard to tell now where gold and silver will bottom. They need some time to breathe, then the bulls will kick in.
    Still, are strong bearish forces: investor sentiment is weak, the US is tapering…
    I don’t think precious metals will recover this year.

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