It’s still too early to enter the metals sector.
As always happens after a strong rally in anything, traders begin to anticipate another leg up. They buy the first corrective move back down because they missed the initial rally, and they don’t want to miss the next one. This is the current setup in the metals sector.
However, all markets are subject to regression to the mean. When price gets stretched too far in one direction or the other, one of two things has to happen. Either a correction back to the mean has to take place, or price has to go sideways long enough for the mean to catch up.
You can see in the first two charts above, both gold and miners (via HUI) have gotten stretched extremely far above their 100 day moving averages. Too far, in fact, for there to be much chance of a continuation of the metals sector rally until price either corrects or goes sideways for a couple of months to allow some time to work off the stretch.
The dollar is overdue for an intermediate rally and the COT Blees rating has been at a maximum bullish 100 for several weeks now. Gold, on the other hand, is now at the maximum bearish Blees rating of 0. Presumably, once the dollar starts to rally, gold will proceed to correct this stretch. So I’m going to suggest you ignore the emotional analysts calling for an immediate resumption of the gold rally.
As always, emotions are never the best investment tool. For now, wait a couple of months for the dollar to rally and gold to correct before jumping back into the metals sector.
The single best tool to tell you when the time to buy is right is how hard it is to pull the trigger. If it’s easy to buy, and you are afraid of missing a move, then it’s still too early. If you are sweating bullets and you have to have your wife push your finger on the mouse because you can’t make yourself do it, then it’s probably the right time to buy.
The time to buy is when you are scared to death to pull the trigger. I would argue that no one is scared of the metals sector, yet.