Gold Bounces but Miners are Underwhelmed
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
The Dovish Fed minutes on Wednesday, coupled with President Donald Trump cancelling his much-anticipated historic meeting with North Korean Leader Kim Jong Un yesterday, has sent gold back above the $1300 level. However, with gold becoming over-sold when hitting support near $1280 earlier this week, the inevitable bounce has yet to inspire very much enthusiasm into gold stock investors. This does not bode well in the short-term for the safe-haven metal while traders begin to focus on the upcoming Federal Reserve Open Market Committee (FOMC) meeting on June 12-13.
Gold has also found some relief with the surging U.S. dollar backing off a bit on Thursday 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 Treasury Note 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 and there was nothing else in the minutes to suggest any acceleration in the pace of tightening, so this may offer some support in the gold space for the time being.
Many analysts in the gold space have been focusing on a continued bullish ascending triangle pattern in bullion which has been forming since December of 2015. The low made this week near $1280 needs to hold for this pattern to continue into the final stages of its completion and indicate a conceivable break above the major resistance in gold at $1,375. However, the action so far in gold stocks has not agreed with this possibility as the GDX continues to wallow in a tight range between $22-$23 the past few months. Gold stocks have historically led the gold price, yet the major miner ETF is well below the technical breakout level at $25 while continuing to meander sideways with record low trade-weighted volume.
Although it would be unwise to dismiss this possibility entirely, I learned long ago not to rely solely on trendline support being held in the gold space to influence my trading decisions. The sector has historically whipsawed many out of position who have based trades on trendlines, so it would be wise to continue exercising caution until the GDX has broken above the $25 level. The major miner ETF has been showing relative strength since early February but has failed to gain much traction with gold stocks continue to lethargically trade without any sense of direction.
I still feel the February 9th low in the GDX will hold just below 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 conceivable trip down to the $1250 region on the back of the U.S. dollar and the yield in the 10-year Treasury hitting their respective, aforementioned targets.
This possibility could be the proverbial “final washout” the gold complex so often presents us with before it can move back into position for the long-awaited breakout above $1375. I have witnessed past trendline breakdowns in this complex, shaking out many long-term gold stock investors just before it reverses strongly in the opposite direction. Mr. Market has habitually faked out participants before the gold train leaves the station and desires the fewest riders on board as possible when it does.
In last week’s column, I mentioned an over-sold bounce possibly happening in the $1280 gold region, but even though it is now taking place, caution is still advised until the market has digested what the Fed has to say next month. This presents an opportunity to research your favorite gold stocks for desired entry points and if you require assistance in choosing the best quality juniors to invest, please stop by my website and check out the subscription service at http://juniorminerjunky.com/