• 271 days Could Crypto Overtake Traditional Investment?
  • 276 days Americans Still Quitting Jobs At Record Pace
  • 278 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 281 days Is The Dollar Too Strong?
  • 281 days Big Tech Disappoints Investors on Earnings Calls
  • 282 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 284 days China Is Quietly Trying To Distance Itself From Russia
  • 284 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 288 days Crypto Investors Won Big In 2021
  • 288 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 289 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 291 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 292 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 295 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 296 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 296 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 298 days Are NFTs About To Take Over Gaming?
  • 299 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 302 days What’s Causing Inflation In The United States?
  • 303 days Intel Joins Russian Exodus as Chip Shortage Digs In
  1. Home
  2. Markets
  3. Other

Gold Looking Vulnerable While Gold Stocks Correct

Last week we highlighted our gold stocks bull analog chart which showed the gold stocks correcting at least 20% at this point during both the 2008-2009 and 2000-2001 recoveries. We concluded that gold stocks were likely to continue to correct in the days and weeks ahead. While that has played out so far, we should also note that Gold is suddenly looking more vulnerable.

Unless Gold has a big bounce the next two days then its monthly chart will show a bearish engulfing candle for the month of May. That implies weakness in June. Key support levels are $1180 and $1140. The bearish reversal in May takes Gold back below its 40-month moving average at $1252. The 40-month moving average has been an excellent trend indicator for Gold throughout its history and it is the last line of defense for bears. They defended it, now bulls will need to defend $1180 and $1140.

Monthly Gold Chart

Equally as troubling for bulls, Gold has lost strength in real terms as it is acting poorly against foreign currencies (FC) and the equity market. Since Gold/FC touched a 3-year high in February it has undergone a sustained correction. Meanwhile, Gold/equities has already retraced most of its winter gains. Look for these ratios to continue lower and test their 400-day moving averages.

Gold:UDN Daily Chart

Meanwhile the miners have obviously begun a correction. GDX and GDXJ were already off 16% and 17% respectively at Wednesday's lows. Even though the miners did not reach their 2014 resistance highs they still reached the second most overbought point in the past 20 years. GDX's parent index, $GDM's distance above its 100 and 200-day moving averages was the second greatest in the past 20 years. That leads us to believe that the correction is likely to be greater than the routine 20%.

The weekly charts of GDX and GDXJ are shown below with the blue lines showing downside support targets. GDX should find good support around $20 while GDXJ should find support at or below $30. A move just below $20 equates to a 25% correction in GDX.

GDX and GDXJ Weekly Charts

The precious metals sector has begun a sizeable correction and it figures to continue into June. Gold needs to regain strength soon in real terms or it could undergo a deeper and longer retracement of its recent rebound than initially anticipated. We will continue to take first cues from the miners which should continue to lead the sector in the weeks and months ahead. Those who have been waiting for a buying opportunity could have their first chance in the weeks ahead.

 


Consider learning more about our premium service including our favorite junior miners which we expect to outperform in 2016.

 

Back to homepage

Leave a comment

Leave a comment