Gold Bounces but Miners are Underwhelmed
The DovishFed minutes on Wednesday, coupled with President Donald Trump cancelling hismuch-anticipated historic meeting with North Korean Leader Kim Jong Unyesterday, has sent gold back above the $1300 level. However, with goldbecoming over-sold when hitting support near $1280 earlier this week, theinevitable bounce has yet to inspire very much enthusiasm into gold stockinvestors. This does not bode well in the short-term for the safe-haven metalwhile traders begin to focus on the upcoming Federal Reserve Open MarketCommittee (FOMC) meeting on June 12-13.
Gold hasalso found some relief with the surging U.S. dollar backing off a bit onThursday and the 10-year U.S. Treasury Note yield back down below 3%. Nevertheless,the technical targets of 95 on the greenback and 3.20% yield on the TreasuryNote have yet to be hit as we head into the FOMC meeting speech on June 13th.The market has priced in an expected rate hike during the next meeting andthere was nothing else in the minutes to suggest any acceleration in the paceof tightening, so this may offer some support in the gold space for the timebeing.
Many analysts in the gold space have been focusing on a continuedbullish ascending triangle pattern in bullion which has been forming sinceDecember of 2015. The low made this week near $1280 needs to hold for thispattern to continue into the final stages of its completion and indicate aconceivable break above the major resistance in gold at $1,375. However, theaction so far in gold stocks has not agreed with this possibility as the GDXcontinues to wallow in a tight range between $22-$23 the past few months. Goldstocks have historically led the gold price, yet the major miner ETF is wellbelow the technical breakout level at $25 while continuing to meander sidewayswith record low trade-weighted volume.
Although itwould be unwise to dismiss this possibility entirely, I learned long ago not torely solely on trendline support being held in the gold space to influence mytrading decisions. The sector has historically whipsawed many out of positionwho have based trades on trendlines, so it would be wise to continue exercisingcaution until the GDX has broken above the $25 level. The major miner ETF hasbeen showing relative strength since early February but has failed to gain muchtraction with gold stocks continue to lethargically trade without any sense ofdirection.
I still feelthe February 9th low in theGDX will hold justbelow critical support at $21, but it may be tested if the gold price fails to hold$1280 and this bounce becomes just a back-test of the breakdown in bullion at$1300. If trendline support fails at $1280, we should not rule out a conceivabletrip down to the $1250 region on the back of the U.S. dollar and the yield inthe 10-year Treasury hitting their respective, aforementioned targets.
Thispossibility could be the proverbial “final washout” the gold complex so oftenpresents us with before it can move back into position for the long-awaitedbreakout above $1375. I have witnessed past trendline breakdowns in thiscomplex, shaking out many long-term gold stock investors just before itreverses strongly in the opposite direction. Mr. Market has habitually fakedout participants before the gold train leaves the station and desires thefewest riders on board as possible when it does.
In last week’s column, I mentioned an over-sold bouncepossibly happening in the $1280 gold region, but even though it is now takingplace, caution is still advised until the market has digested what the Fed hasto say next month. This presents an opportunity to research your favorite goldstocks for desired entry points and if you require assistance in choosing thebest quality juniors to invest, please stop by my website and check out thesubscription service at http://juniorminerjunky.com/
By David ErfleContributing tokitco.com
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