As we know, Gold and gold mining stocks have been trapped in a bear market
that has been severe in both price and duration. It is seemingly a "forever" bear
market as rebounds and recoveries have been followed by lower prices and more
devastation. The Fed-induced strength of this week is giving bulls some hope.
For the bulls, this strength needs to be duplicated in the weeks ahead or it
would be another false alarm. While a new bull market is inevitable, we do
not see it as imminent.
First I will start with the miners. We plot a weekly candle chart of GDXJ
as it is the strongest and figures to lead the eventual recovery. GDXJ is reversing
today. That is bearish though it is not entirely reflected in the weekly chart.
GDXJ, trading around $21 faces a confluence of major resistance around $23
to $24. Multiple lines of resistance and the 200-day moving average converge
there. While GDXJ has formed a good base, its potential recovery will remain
questionable or doubtful unless it can make a weekly close above $23 to $24
within the next few weeks. Bulls need to see GDXJ explode through that resistance
or it could roll over again.
The prognosis for Gold is even simpler. Its key resistance and pivot point
over the past 12 months is $1155 to $1160. For the bulls, Gold needs to break
above that barrier with a few strong weekly closes. If it cannot, then the
strength of the past few days will be another false alarm.
The recent recovery in global equities may have ended yesterday (Thursday).
The S&P 500 rebounded back above its 400-day moving average (2003) to 2020
before reversing to close below its 400-day moving average. It remained below
its 50-day moving average the entire time. It is down another 1.3% today. Other
markets such as the Nasdaq, Emerging Markets (EEM) and Russell 2000 made the
same reversal and at their 50-day moving averages. They are down more than
1% today.
Further weakness in global equity markets should be bullish for precious metals
in the sense that it could act as a catalyst for the start of the next bull
market. In the chart below we plot Gold and gold miners (GDXJ) against the
all country weighted index (ACWI). It is important to note, the precious metals
complex remains in a downtrend against equities. It has not broken out yet
but figures to have a good chance to do so in the months ahead.
If Gold and gold miners have bottomed then they should explode through upside
resistance over the next few weeks. Gold would need to push above $1160 and
more importantly, GDXJ would close above resistance at $23-$24. While I do
not expect this to occur, it is a scenario we should keep in mind.
The other scenario is this Fed-induced rebound in precious metals fizzles
out and precious metals join global equity markets in a selloff. Although that
is bearish, it would be bullish to see Gold decline less than global equity
markets. That scenario, given how Gold fared relative to equities in the August
selloff, is plausible. Gold traders and investors need to be careful here and
put their portfolios in position to take advantage of the next buying opportunity,
which could mark the end of the bear.
