The Buying in Gold and Silver ETFs is Overdone

hotandhigherJust as we thought the momentum was all set to die down for the red-hot gold and silver ETF group, this past week saw a re-acceleration of buyers stampede their way back in and take precious metal ETFs to another monster week.

Check out the gains we saw this past trading week:

  • Proshares Ultra Gold Miners ETF (NYSE:GDXX) – up 12.25%
  • PureFunds ISE Junior Silver ETF (NYSE:SILJ) – up 9.66%
  • Junior Gold Miners ETF Market Vectors (NYSE:GDXJ) – up 9.35%
  • SPDR S&P Metals & Mining (NYSE:XME) – up 7.44%
  • Gold Miners ETF Market Vectors (NYSE:GDX) – up 6.29%

From a technical perspective, many of these ETFs are defying most logical trading approaches as defined by easing off buying ETFs that are trading 100% over its 200-day moving average, like is the case with the Proshares Ultra Gold Miners ETF foe example. Yet amazingly, the current batch of traders who are participating in the daily ups and downs of the precious metals move are showing little fear to what are obviously historically overbought signals.

Most analysts are admittedly perplexed by the current investing environment when it comes to the gamut of asset classes all rising at the same time — bonds, stocks, and commodities.

How things will play out from here is anyone’s guess, but for new traders, we would recommend playing the long side a bit more carefully as per how trade reversion could eventually play a factor in how much the gold and silver ETFs can run from current levels.

For an illustration of just how overbought these plays are, check out the year-to-date chart of the GDX:

So regardless about how you feel about precious metals for the long term, the short-term technicals are screaming overbought right now.

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