Our favorite yellow metal has been the topic du jour as of late as prices of both the commodity and the miners themselves have been decimated over the past couple of months. This should not be surprising as precious metals are in the midst of a major bear market that has been going on for over 4 years. It’s hard to find a worse looking asset class in the world.
So where are we? The first chart shows Gold going back to the key resistance in 2008-2009. Once we broke out above that, gold prices ripped and nearly doubled in value within a short period. Because the market has so much memory near this key $1000 level, it has been our downside target for a long time. I still think it’s where we’re ultimately headed:
Looking a bit more short-term, prices over the past few weeks hit our tactical downside target near $1087 which is the 161.8% Fibonacci extension of the most recent rally from the March lows. We’ve held nicely so far which is the market telling us that this level is relevant. Based on the bigger picture outlook we still want to be sellers, but strategic sellers. I would either be an aggressive seller of any strength back towards $1140 which was former support since the 4th quarter or get short again if and only if prices stay below $1087. Tactically, I don’t see any reason to be short now that our target has been hit and we’re above $1087:
As far as the Gold Miners are concerned, the popular Gold Miners ETF $GDX is at all-time lows and we don’t have data that goes back earlier than that. So we turn to the Gold Bugs Index where we have much more historical data and is similar in that it is a basket of gold mining stocks including Barrick, Goldcorp, Newmont, Agnico, etc. Notice the failed breakout in 2011 and look at the consequences of the bulls losing control. We see these ‘fast moves from failed moves‘ over and over and over again. I think this is just a good clean example. Prices are still crashing and there is zero sign of a bottom:
But there’s good news. I guess. If I had to pick one stock that looks clean for a trade and can possibly mean revert, I have to say it’s Newmont Mining $NEM. Here is a daily chart showing prices hitting our downside target over the past week based on the 161.8% Fibonacci extension of the March-May rally that was also key support in the 4th quarter. This level near $17.50 is the line in the sand. I would only be long if we are above that. Below $17.50 and there is no reason to own it. Profit-wise I would be an aggressive seller near $21.50 which was former support in March:
The best part about these charts, in my opinion, is that we have some pretty well-defined levels (except for the Gold Bugs Index I suppose). We have well-defined targets and support levels in the commodity and also in Newmont. To me that’s all that matters.
What are you guys thinking here?
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Tags: $GDX $NUGT $DUST $HUI $GC_F $GLD $NEM $GG $ABX