All that Glitters 8/31/12- Going to a hold

Unless you have superior insight into the Fed's move and/or the coming price action in gold, I would hold any position you have in the precious metals or the stocks to ride out any potential gains. I would also still use weakness in the stocks and precious metals to add to positions. That said, I think much of easy gains are behind us and the allocation of risk capital to the group is only likely to achieve the average gain going forward.

To update you on the timing models.

The 6-month timing model is now solidly in positive territory. Provided estimated money supply figures and the current price of gold, the latest 6-month derived indicator is now a 0.87.

As for the 1-year model.

The 1-year model remains negative at -0.29. This is still in a buy range, albeit a weaker buy.

Since bottoming on July 24th, the Phily Gold/Silver Index has increased by 18.8%. Looking at the historical results to gauge what we could expect, there may be a 50/50 chance of a slight correction in the near term. Using a +/- 0.20 range around current results and looking back over the last 12+ years, there has only been two instances where we have seen the current indicator setup. Using this small sample, the average 1-week return was a -0.32% and the average 3-month return was 1.31%. This compares to the average buy-and-hold results of 0.28% and 3.05%, respectively.

Of course, this is a very small sample and may not be representative of the population, past and future. Looking at the indexes however, I think you can build a decent hold case.

The Market Vectors Gold Miner ETF (ticker GDX) is running into near resistance at the 200-day moving average. This is while the track of the A/D line is diverging from the price trend and slight divergences in the RSI and stochastic from the price. If the GDX cannot pierce the $47.62 level- which is the June 6 high-volume, swing point- with conviction then a correction becomes more likely.

In addition the GLD (the Spider Gold Trust ETF, a proxy for gold prices) is at the low end of the February 29 sell-off, a sell-off that began the downtrend of 2012.

The GLD is likely to hit significant selling pressure in this area, and without new news will have to work through it before a sustainable rally ensues.

Lastly, the Market Vectors Junior Gold Miner ETF (ticker GDXJ) is not confirming the rally.

As the above graph shows, today's rally in the junior gold miners is exhibiting less force than either gold or in the larger gold miners. In my mind, an improving sentiment for gold and precious metal stocks would disproportionately benefit junior gold miners, which we are not seeing. The setup in my timing indicator and the technicals of the precious metals and stocks implies now is not the time to allocate risk capital to gold mining stocks.