Friday, November 9, 2012

All that Glitters- Lighten Up on Precious Metal Stocks into Strength

I am comforted by the idea that nothing moves in straight line. Although the models were beginning to flash buy signals week, they reversed this week as the price of gold bounced nearly $50 per ounce. That is fine by me, as the buy signal on the precious metal stocks seen last week was not particularly strong and the bounce in gold may be the market pulling in buyers before another down leg.

The following are the updated results for the three timing models through the end of the most recent week. Again as a reminder, money supply is an important input in the timing models, and I use a forecast for money supply for the most recent weeks because these figures are reported with a two-week lag. In addition, I have detailed this before but negative results are better than positive results, as a gauge to time precious metal stock purchases.

3-month model

The 3-month model ended the week at 0.07, a worsening of 0.74 points from last weeks -0.67, but is an improvement over the 0.42 last month. The 3-month model is most volatile of the models.

6-month model.

As for the 6-month model, the 6-month model finished the latest week at 0.77. This is worse than last weeks score of 0.06, but an improvement over the 0.88 last month.

1-year model

The 1-year model worsened by 0.68 points over last week and finished the current period at 0.25. The indicator also worsened versus the month ago results of 0.09.

All three indicators are now in a weak sell range, especially the 6-month model, suggesting that investors lighten up on any overweighting in or stop buying precious metal stocks. I think this view is corroborated by the technical setup in gold or the Gold Spider ETF (ticker GLD). I will update my view on the technical outlook for gold later, which will be found here.

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