Thursday, January 2, 2014

Too Early Too Call A Sign of Gold Stength

I have noted for you a few times that what was missing from a full buy signal in gold/precious metal related investments was either a turn in the risk measure (go see the 'All That Glitters posts for details on this) and/or a sign a strength on a price/volume basis. Today, gold prices have jumped almost 2 percentage points while the price of the precious metal equities (the Phily Gold/Silver Miner Index, the Market Vectors Gold Miner Index, or the the Market Vectors Junior Gold Miner Index... take your pick) have gained by more than 4 percentage points intraday. Just look at the chart for the Gold Miner Index or the GDX.

In of itself, the wide price spread and the 4% leap in equity prices would suggest a sign a strength. Missing however, is a lack of accelerated volume. A linear extrapolation of the trading volume today suggests total turnover of about 37+ million shares, short of the average volume level and most high level trading days. And yes, a linear extrapolation is not representative of the smile curve of trading volume seen in most trading days. However, it can serve as imperfect model to help share our thinking. If anything, the trading action and volume (at least at this point) looks like traders are testing the Dec. 11 trading levels. Without a late day volume surge and a subsequent increase in prices, we have just not seen a sign of strength. Stay tuned.

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