Textbook bullish setups in gold & gold stocks
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
It appears the Gold sector is in a correction that could become its most serious since March.
GDX has corrected 13% while GDXJ has corrected nearly 15%. Silver meanwhile has held up much better than Gold, which failed to break resistance at $1760/oz.
During the rapid rebounds of 2008 and 2016, corrections in the gold stocks tended to be 17% to 20%.
There were far more of those in 2008 and 2009 than in 2016. Corrections are a good thing as they pave the way for new buyers and new adopters, which in turn, strengthens the trend.
In only a matter of days, GDX and GDXJ nearly touched our downside targets.
Regardless of how much longer or how much deeper this setback is, it is important to keep the big picture in mind. Gold and gold stocks, in particular, have precise, bullish setups with the potential for huge moves over the next 12 to 18 months.
Let’s start with the large gold stocks.
GDX just broke out from a 7-year base.
The term “breakout” gets applied to almost every wiggle in the market. It irks me because it takes attention away from the real breakouts, like what just happened in GDX.
It’s a breakout with implications for the next several years, and recent action could merely be a retest of the breakout. That is typical and textbook.
GDXJ is correcting after reaching 7-year resistance for the first time since 2016. That’s normal as breakouts do not typically occur on the first try.
It hasn't broken out yet, but odds are it will sooner rather than later.
The setup in Gold is not as immediately bullish as what we see in the gold stocks, but there is a long-term bullish setup.
Gold, which has been unable to surpass $1760/oz, has stiff resistance at $1800/oz and $1900/oz.
If Gold can reach $1900/oz, then it will show a potential cup and handle pattern which, upon a break past $1900/oz, projects to a measured upside target of $2,750/oz.
Whether the current correction lasts another two weeks or seven weeks (pick a random number) it will not change the larger bullish setup that is in place for Gold and especially the gold stocks.
Although they have come very close to our correction targets, I would give it more time. A record two-month rebound in the gold stocks is not going to correct itself in only one week.
I would also take our cues more from the stocks than the metals as they figure to be a better leading indicator.
As I wrote last week, if you are fully invested, hold your positions.
If you need to deploy cash, make your company list and accumulate on weakness.
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