Strong Monthly Closes in Gold and the Miners
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Despite most big money traders and fund managers still being on vacation, the gold price has broken and held above strong resistance at the $1300 level on a monthly basis. The GDX has responded in kind with a close well above the $24 level, which so far this year has been strong monthly resistance in the major miner ETF.
A day after gold closed above $1300 earlier this week, the US election night high above $1330 was tested when North Korea fired a missile that flew over Japan and landed in the Pacific waters off the coast of South Korea. This geo-political move in gold has already been sold off, as the formerly strong resistance level (now support) of $1300 was tested and held a few days later. The GDX also tested and held the $24 level on the last day of August.
A steady rise in SPDR fund tonnage in the GLD has also been seen in the past few weeks. Since the bull move in the yellow metal began early last year, the accumulation/distribution of physical gold in this ETF has been a good barometer for the near-term direction of the gold price.
When gold closed above the $1300 level earlier this week, the very over-sold US Dollar made a sharp intra-day reversal after piercing strong long-term support at the 92 level on the cash settle index. However, the gold price has not been phased by this action and remains firmly entrenched well above the $1300 level, while the US dollar remains above the 50% retrace of the entire 2014-2016 US dollar bull move near 92.
I believe a weak dollar and low bond yields, coupled with investors rotating some money into gold assets as a hedge against a bull market that's in its ninth year, has placed a solid $1250 floor in the gold price.
The key for gold will now be to hold the $1300 level and looking ahead, there will be a few potentially large gold sector catalysts. The next Federal Open Market Committee (FOMC) meeting will be on September 19-20, which will be followed by the German election on September 24th. We will also have the US debt ceiling drama to contend with and it will be coming to a head at the end of the quarter.
The US equity market is way over-due for at least a 10% correction and historically, the month of September has not been kind to over-valued markets. The issuance of credit default swaps (CDS) in 2017 is running at twice that of last year, reflecting rising concerns of a coming crash in US equities, which is bringing more safe-haven capital into gold.
The miners are also beginning to lead the metal again as the GDX has gained 17% this year versus a GLD gain of 14%, and the GDX is outpacing GLD by a 79% to 23% margin since the start of 2016. Gold and its miners are outperforming the S&P 500 this year and the period since the start of 2016. That's the first time this has happened since 2011.
The set-up in the miners heading into the last month of the quarter appears to be very bullish. As I have mentioned in previous articles, the odds were in favor of an upside resolution to the year-long triangle consolidation pattern in the GDX based on numerous junior gold stocks already trading at 4-year highs.
I am now looking for a quarterly close at the end of September above the $1365 area for the final technical confirmation of a bull market in gold being firmly in place. Meanwhile, my subscribers and I will remain fully invested in the best of class junior developers and exploration firms as we patiently await this very possible outcome.