Precious metals for the most part have reached their initial rebound targets.
Gold has led the charge by pushing above $1140 to $1150/oz resistance (for
now) while Silver rebounded back to former support (the mid $15s). GDXJ has
nearly touched $23 but GDX has failed to touch $17. This leaves us to question
how much upside could be left and what happens next.
The daily line chart of Gold is shown below. It does not include today's price
action which has Gold trading at $1160/oz. Gold has been able to push above
the $1140 to $1150 resistance area. On the monthly chart, $1180 is significant
resistance. The 200-day moving average is at $1187 and declining. The next
strong lateral resistance is $1175 which provided support many times over the
past nine months. Gold traded as high as $1165 and figures to close the week
around $1160. It has potential upside to $1175.
While Gold is higher today the gold miners have put in a reversal on the daily
chart. It could be a signal that the rebound is losing steam. The weekly candle
charts of GDXJ and GDX remain fairly strong. Note that GDXJ came within 1%
of $23 this morning. GDX has yet to reach $17 but is only down 1% today. If
Gold is going to test $1175 then GDXJ could trade up to $24 while GDX touches
$17.
As the precious metals sector tries to find a bottom or establish a base,
it will be very important to keep an eye on Gold's relative performance which
is often a leading indicator at key turning points. Below we plot Gold against
stocks, foreign currencies and commodities. Gold is strongest against commodities
and weakest against stocks. Gold against foreign currencies bottomed almost
two years ago. Gold needs to break its downtrend against stocks before a new
bull market can take hold.
The cracking of the US equity market is definitely a positive for the precious
metals sector but it does not tell us if the sector has bottomed. Gold has
taken out $1150/oz for now and has potential upside to $1175. Given the strong
overhead resistance we should expect a pullback or some consolidation of recent
gains. Keep an eye on the miners as they tend to lead the metals. The reversal
in the miners today is an early warning signal that the rebound could be nearing
its end.
If Gold retreats and threatens to test $1000/oz then keep your eye on its
relative performance against equities. Gold has already bottomed against foreign
currencies and is showing strength against commodities. However, Gold has yet
to overcome the broad equity market. A clear break in that downtrend in favor
of Gold would be a powerful signal that a new bull market has already begun
or is imminent.
