In regards to technical analysis, we usually discuss (in our public commentaries) price patterns, intermarket relationships and sentiment. I can’t remember I wrote something about volume. This may be the first. Volume can be interpreted in a number of ways which can make it less reliable in my opinion. However, in today’s commentary we want to make an observation based on volume.

The precious metals sector has had a strong run in the past few months. Particularly, the juniors and Silver have showed the most strength. Gold and the large cap gold stocks have been laggards. Consider that fact and the volume patterns in GLD and GDX and we have to believe that the big money hasn’t participated in this recent (last two months) advance.

Below is a chart of GLD. I highlight the action of the past few months. Note how low the volume is relative to the past two years. The volume moving average isn’t even close to its highs in the past two years.

Meanwhile, we see the same thing in GDX. The volume moving average isn’t even close to its high. Moreover, its on the low side relative to the past two years.

The volume tells us that institutional money likely participated in precious metals throughout 2009 and in early 2010. However, we have to think that institutions were not ready for this recent move and missed it. Also, it is highly unlikely that institutional money was playing the juniors and Silver. Those markets are very small and not liquid enough for many institutions and hedge funds. This “big money” is most likely to be deployed into areas like GLD and GDX rather than the aforementioned niches.

For those worried about a correction, there is another point to take away. Should we see a typical 20% correction in these markets, then GDX and GLD should hold up better than say, SLV and GDXJ.

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