The Silver Stock Sector in August
In last week's article, "Will August show kindness to the XAU?" we looked at historical and seasonal data that suggests that August will turn out to be an overall positive month for the gold and silver shares. In most years, the XAU will post a near-term bottom in July and then move higher off those lows in August. The XAU and HUI indices have already given preliminary indications of following this August seasonal pattern as we start the month.
Probably the best clue that the month will be positive, as we discussed previously, is the number one leading indicator for the gold and silver shares - Freeport Copper & Gold (FCX). FCX is uniquely positioned to act as a frame of reference in the mining sector since it engages in the mining, exploration, and production of copper, gold and silver through its subsidiaries and is sensitive to metals trends on a number of levels. As you can see in the historical graph shown below, FCX typically leads XAU at turning points.
FCX was instructive in July as it continued to trend higher throughout the month even as the XAU moved sideways-to-lower. This positive divergence in FCX was a technical "heads-up" signal that XAU would soon join FCX on the upside.
Last week we also examined those silver shares which put on a good relative performance compared to XAU in July, most notably Pan American Silver (PAAS), which has showed steady upside progress and relative strength compared to the XAU in recent weeks. But other actively traded silver shares haven't had quite the same relative strength of PAAS; some have been laggards with a slight downward bias while others have traded in a lateral range in the past several weeks. Among those in the latter category is another leading silver mining share - Coeur d'Alene (CDE).
CDE has been slow in building a technical base from which to launch its next rally. But despite the sluggishness, CDE shows signs of developing internal strength and the trend is gradually turning upward. This is reflected in the dominant short-term 30/60/90-day moving average pattern, with the 60-day MA about to turn up above the 90-day MA.
Seasonally, the month of August tends to be positive for the leading silver shares like CDE. Since 1995, August has been a net positive month of trading for the silvers ever year except 1998, which was noted for its across-the-board deflationary effects on virtually all commodities. The best August in the past decade for the silvers was the reflationary year 2003.
August is nearly always sees a gain for silver shares when those stocks enter the month above their respective 30/60/90-day moving averages, such as last year's August. Entering the historically favorable August time frame above these trend lines is normally a reflection of internal strength and momentum.