I was recently asked my thoughts on the triple-bottom in gold/GLD last week, to which I replied: On the gold triple bottom, there isn’t really much to say other than so far, so good. I haven’t commented on it much lately because my focus has been on the broad market & nothing much has changed on my outlook for gold (I still believe a case can be made that gold is bottoming and so far, nothing technically has negated that). I still own the PM stocks that I started scaling into a bit too early this last time around and although I haven’t been adding for a while, I may start to add some more exposure if the current strength in gold continues. I have been meaning to update gold, silver & the miners but I’m leaving town for the weekend today so that might have to wait until early next week.
To add to the fact that so far, gold is exhibiting bullish price action lately by bouncing off the mid & late 2013 lows, it is also worth noting that much of the recent rise in gold prices is largely attributed to the decline in the US dollar. As recently discussed, the longer-term bullish case in gold hinges largely on my expectation for a trend reversal in the dollar ($USD down). So far, so good on both although there is still much work to be done from a technical perspective to say that this is anything but a relatively brief counter-trend bounce in both the dollar and gold vs. the early stages of a more lasting trend reversal. In this daily chart of GLD, I’ve listed what I believe to be the four most salient overhead resistance levels. The next major direction in gold could be viewed as a war between bulls & bears (buyers & sellers) with each of these 4 resistance levels as a successful battle, if taken out. Once all 4 resistance levels are conquered, the “war” will likely be won by the buyers with a new bull market in gold underway.
GLD daily Oct 22nd
The next chart shows the recent disconnect between gold prices, which have been rising steadily since Oct 3rd, and GDX (gold miners ETF), which is literally trading within 3 cents of where it close that very same day that gold began to rally. In other words, gold mining stocks have gone nowhere while GLD has made a steady advance of nearly 5%. In the past I have talked about the occasionally disconnects between the price of gold & the gold mining sector, such as during this post back on Sept 4th when I stated: “… I have often discussed in the past how the mining stocks are basically just a leveraged play on gold prices and with the recent breakdown in gold, including the price weakness that proceeded that breakdown (along with the fact that the miners were relatively strong despite the softness in the metal prices) GDX is simply playing a game of catch-up to the downside in recent trading sessions and most likely will continue to do so until gold prices start to firm up.”
GDX vs. GLD Oct 22nd
Now we have the same situation in reverse: Gold moving higher with the gold stocks not getting the memo. Therefore, a game of catch-up is likely with one of two probably outcomes: Gold mining stocks start outperforming gold to the upside -or- the gold stocks have it right & gold must now play catch-up to the downside. I remain partial to the former (a rally in the miners) although my conviction isn’t as strong as I’d like it to be in order to aggressively add to my current positions. However, should gold continue to climb along with a resumption of the near-term downtrend in the $USD, I will likely add exposure to the mining sector in anticipation of a mean reversion between gold & the mining stock. Keep in mind that there is a third possibility which would be for GLD to move lower (or trade flat) while GDX gradually moves higher. I plan to spend some time reviewing the charts of the individual components of GDX this week & will share any trade setups that stand out.