Gold and gold mining stocks have been very oversold but have struggled to
rally. The sector looked to be starting a rebound until Friday's decline which
pushed Gold to a new low. However, positive divergences remain in place as
gold stocks and Silver remain above their recent lows. While the Federal Reserve
could say something hawkish next week, the setup continues to favor a rebound
in the precious metals sector rather than an immediate decline to new lows.
The monthly chart of Gold is shown below. Gold closed last week at $1162/oz
after trading as low as $1157/oz. The weekly chart (not shown) shows key support
(and closes) at $1158-$1165/oz while the monthly chart shows support from $1142
to $1157/oz. That range marked key support or resistance from the end of 2014
through most of 2015. It is highly unlikely that Gold does not hold this level
in its current oversold state. However, that does mean Gold could test as low
as $1142/oz before rebounding.
The gold stocks are in a similar position in that they could drop a tiny bit
more before the start of a rebound. The daily line chart below shows the strong
support in GDX at $20, which includes the 400-day moving average. GDX closed
Friday at $20.67. Also, the 62% retracement is 1% below $20, at $19.80. GDXJ
has been stronger as it remains a good distance above its 400-day moving average
and 62% retracement. However, the chart below shows key support at $32.50,
which is 5% below Friday's close.
The technicals argue that both Gold and gold mining stocks could drop a tiny
bit more before starting a rebound. It would not surprise me if the sector
is soft into or even immediately after the coming Federal Reserve rate hike.
Once that passes, the sector could be in position to rally as expected. The
coming strength would be an opportunity for traders and investors to de-risk
their portfolios and raise cash for a better buying opportunity early next
year. Generally speaking, we do not want to buy investment positions until
we see sub $1100 Gold and an extreme oversold condition coupled with bearish
sentiment.
