From the Desk of Ian Culley @IanCulley
There’s a mountain of bullish evidence supporting an upside resolution in gold.
But gold hasn’t broken out. Not yet!
Gold has been running this race for months… at least, that’s how it feels.
Perhaps it’s simply making its way to the starting line…
I believe that’s the best way to view gold and precious metals at this stage of the game. Before I get ahead of myself – marking a series of upside objectives – I want to highlight a key level that defines my intermediate- and near-term risks…
Last week, gold futures came within five dollars of breaking to new highs:
Close, but no cigar.
There’s still plenty of overhead supply at those former highs at approximately 2,089. But bulls remain in control based on the bullish momentum regime and the clear uptrend off the October 2022 lows.
The three-point bearish divergence on the 14-day RSI might not paint the most bullish picture. You could even argue the momentum divergence increases the likelihood of a correction.
But I want to give the bulls the benefit of the doubt as long as price holds above the April pivot lows at approximately 1,980.
I must always know where I’m wrong – and that’s my level.
Downside risks kick in if the bulls fail to sustain prices above those former lows. My short- to intermediate-term bias turns neutral for gold futures on a close below that level.
Meanwhile, it’s no secret I like gold mining stocks.
Check out the Gold Miners ETF $GDX versus the S&P 500 $SPY ratio overlaid with the Gold ETF $GLD:
I see a potential catch-up trade for the GDX/SPY ratio at first glance. But GDX’s relative strength largely depends on gold’s uptrend.
I doubt GDX is outperforming the broader market if gold is trading below 1,980. On the flip side, I doubt gold futures are printing new all-time highs if the GDX/SPY ratio rolls over. It works both ways.
Where am I wrong, and what are the risks?
I’m monitoring the GDX/SPY ratio for signs of a near-term reversal, indicating potential weakness ahead for gold.
Nevertheless, I like buying gold mining stocks – but only the strongest!
Gold Fields $GFI provides a prime example:
I reiterated GFI in last week’s commodity post since it was breaking out of a reversal pattern.
GFI is not only completing a decade-long base, but it’s also printing fresh 17-year highs relative to GDX. These are the types of mining stocks I want to buy.
Buy the strongest, and sell the weakest.
There are plenty of names carving out tradeable lows. If gold enters a new secular bull market – and I believe it will – those names will present ample trading opportunities.
For now, I’m long GFI if it’s above 16, with an initial objective of 24.50 and a secondary target of 38. To be clear: I want nothing to do with GFI if it closes below 16.
It might be too early to celebrate a new secular bull run in gold. But it’s not too early to prepare. That means buying fresh breakouts in the strongest mining stocks while waiting for the underlying rocks to digest overhead supply.
Stay tuned!
Thanks for reading! As always, please let us know what you think.
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Allstarcharts Team
