Gold made new all-time highs this summer. That was pretty cool. Hadn’t seen that in almost a decade.
Some people always like buying gold. They joined some secret society once where they convinced themselves it was part of a “diversified portfolio”. I don’t know what kind of strategy that is, but it was a really shitty one for a long time.
That all changed earlier this year when Gold Miners $GDX finally broke out above 31, which had been our key levels for years. And the metal itself broke out above 1580 or so which had been our equivalent level there.
Our initial price targets were hit last month so I called Sean over on our Options desk and he suggested an easy strategy to bet on a pause in this uptrend: When The Ducks Are Quakin’ (Gold Bugs), We Feed Them!
Our profit targets were hit today in this volatility fade in Gold.
You can learn more about All Star Options here.
So now what? Our upside targets were hit. Check. Then we bet on a pause. Check.
Let’s now take a step back. Has the fact that precious metals are in an uptrend changed? No.
Just because our initial upside targets were hit, does it mean we now ignore it completely? No.
In fact, I think we’re probably setting up for another leg higher in precious metals.
Here is the Gold Miners index achieving that initial objective. I don’t know how long it will take to consolidate here and move on, but I do think the much higher probability is an upside resolution:
Moving forward, we only want to be long $GDX if it’s above 45. Below that and I think it’s more trouble than it’s worth. The next target is back up towards those former all-time highs near 65. Gold got there already. I think the miners do too.
Here is the Gold ETF $GLD getting back to those former highs and struggling up there. Makes perfect sense to me. It’s a big reason why we locked in that credit in the options market:
Like Gold Miners, I do think after some further consolidation the path of least resistance is higher. If we’re above those 2011 highs, I like this long with a target near 238. Let’s call the risk level 186.
And finally, here’s Gold’s crazy little cousin Silver. In this case, Silver also achieved our upside objective based on all that former support in 2011 & 2012. To be more on the safe side, let’s call the risk level closer to 27.
If we’re above that, then I like $SLV long. Otherwise, it’s a no-touch for now. $34-35 looks like a good target based on both a key retracement and former support in 2011-2012.
The big catalyst here? I think the obvious choice seems to be a weaker US Dollar. It’s certainly helped so far. This is a downtrend:
Bruni has more on this in our new Chart of The Week
If you start to see the $DXY above 94, then it’s probably going to take much longer for these precious metals charts above to break out again. New lows in $DXY and further deterioration towards those 2018 lows will most likely lead to that next leg higher in metals.
We’ll be watching closely.