Gold & Silver Mining Stock Poker – Technical Analysis Addendum

Gold & Silver Mining Stock Poker – Technical Analysis Addendum

Originally published on Mar. 22, 2022 by TraderStef at CrushTheStreet

The mining stocks to consider that were published on Mar. 18 in “Gold and Silver Mining Stock Poker for Spring 2022 – Technical Analysis,” fulfilled an intraday scalping opportunity on Monday, Mar. 21. As expected, the mining sector, silver, and gold are currently in a consolidation phase that typically lasts for several weeks or could end sooner than later. If you have not already done so, I suggest a review of that poker hand in the mining stocks watch list before continuing with this addendum.

I am adding a few items today that were not covered last week and will close with a technical analysis of the $HUI and $XAU indices. I’m often asked for reliable sources that provide articles and information on the mining industry. My suggestion is to start with the following:

The good folks at Incrementum publish one of the most comprehensive research papers in the precious metals industry with a focus on gold. Their chart books are my favorite. Here are a couple of excerpts and one chart on operating cash flow in the mining industry:

“Miners have really cleaned their house well over the last years. They are now in a perfect position, to profit from the coming bull market. We see great possibilities in the sector over the coming years. We cut back on expenses to yield a better balance sheet next year.” – @InGoldWeTrust, Feb. 2022

“The gold industry is in better shape than ever. The authors of a highly recommended study analyzed a sample of 85 gold companies that sell-side analysts were expecting to generate nearly $38 billion in 2020 and $50 billion in 2021. This is significantly higher than the $25 billion generated in 2019 and the $15-$20 billion generated from 2013 to 2018. Even though companies are expected to improve organic investments, both greenfield and brownfield, free cash flows will leave significant cash balances at their disposal. Additionally, the industry’s debt capacity has climbed considerably, as leverage ratios have decreased with improving financials. This will provide additional room to invest, if required. Some part of this cash will be distributed back to shareholders. However, given the high attractiveness of the gold industry, McKinsey expects companies to redeploy a significant part of their capital to secure growth.” – In Gold We Trust 2021 Report, Incrementum

To view a larger version of any chart below, right-click on it and choose your “view image” option.

Annual Gold Production by Country 1930 - 2021
Chart Courtesy of Kaiser Research – Feb. 2022

M&A and Venture Capital Charts Courtesy of Mining Technology, Mar. 2022

Here is an excerpt on silver’s fundamentals from the Silver Institute:

Silver Demand: Total global silver demand is expected to reach an all-time high of 1.112 billion ounces in 2022, driven mainly by record silver industrial fabrication — forecast to grow by 5% as silver’s use expands in both traditional and critical green technologies. Industrial demand, which makes up more than half of total demand, will strengthen due to global economic improvements and mitigation of supply chain disruptions brought on by COVID-19. Silver use in automotive will continue its robust growth as vehicles increase their use of electronic devices. As chip fabrication shortages abate, more silver will find its way into consumer devices. The outlook for silver’s use in the photovoltaic (PV) industry remains bright. Government commitments to carbon neutrality have resulted in a rapid expansion of green energy projects. As a result, even with ongoing efforts to reduce silver loadings, record PV installations are expected to lift silver demand in this segment to an all-time high in 2022. Jewelry is expected to grow by an impressive 11% and silverware by 21%. Silver Supply: Total global silver supply is projected to rise by 7% to 1.092 billion ounces in 2022, mainly from mine production, which is forecast to grow 7% to a six-year high this year. After shifting to a market deficit in 2021 for the first time in six years, the silver market is expected to record a supply shortfall of 20 million ounces this year.” – Silver Institute Newsletter, Feb. 2022

A few recent articles that are not mining specific, but relevant:

  • Gold dealers swamped by demand as Ukraine war creates inflation scare – Gulf News, Mar. 13
  • Pause in Production of Silver Morgan’s and Peace Dollars for 2022 – U.S. Mint, Mar. 14
  • Russians buying so much gold that the central bank halted purchases – Market Insider, Mar. 14
  • Banks Are Restocking Gold at the Fastest Pace in Years – Schiff Gold, Mar. 18
  • Trading Houses Will Collapse as “Margin Call Doom Loop” Goes Global ZH, Mar. 24

Finally, let’s take a look at the NYSE Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) and the NASDAQ Philadelphia Gold and Silver Index (XAU), which are the most prominent precious metals indices. The HUI exclusively tracks gold mining stocks (see basket), while XAU includes gold and silver mining companies (see basket) along with those that hedge their production beyond 18 months. The XAU Index began in 1979 and the HUI was launched in 1996.

$HUI NYSE Gold BUGS Index weekly chart as of Mar. 22, 2022 close…

Take note of the rally that started in late spring of 2019 and printed a high of $245 in the late fall. When the pandemic panic took hold in the winter of 2020, just about every equity or commodity in the financial markets plunged and recovered violently into late spring. A brief consolidation period formed a Half Staff Flag and a rally followed until late summer. The subsequent correction into the fall and winter of 2021 formed a Descending Broadening Wedge that bottomed out at $245, which ended with an Up Channel that tapped the $325 lateral in June. The next correction formed a Falling Wedge that bottomed at a Fibonacci confluence in the early fall. The price action consolidated above the $245 lateral through the fall and winter of 2022, then rallied to a confluence of the $325 lateral and 2011 topside trendline two weeks ago. The price action is now choppy and consolidating before it can break through the topside trendline. If the trendline is breached, there will likely be a Throwback that tests the trendline as support before any rally can resume.

The DMI-ADX’s Alligator Tongue power trend setup is hesitating due to resistance at the $325 lateral, the StochRSI is in overbought territory but still trending upward, and there are no Volumes to consider because HUI is an index and not a tradable stock. The chart is bullish and indicative of a spring or summer rally in the mining sector. If a breakout occurs, the next price target is $360-$380.

$XAU Philadelphia Gold & Silver Index weekly as of Mar. 22, 2022 close…

The price action history is identical until the high in late summer of 2020. The subsequent corrections and rallies are similar, but a Right-Angled and Descending Broadening Formation pattern dominates the chart with a topside trendline at a $167 lateral resistance. That type of formation has a 65% chance of breaking out to the upside, then a Throwback in price will test the topside trendline as support.

The DMI-ADX’s Alligator Tongue power trend setup is hesitating due to resistance at the $167 lateral, the StochRSI is in overbought territory but still trending upward, and there are no Volumes to consider because XAU is an index and not a tradable stock. The chart is bullish and indicative of a spring or summer rally in the mining sector. If a breakout occurs, the next price target is $190-$195.

Al Stewart – Road to Moscow

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