Technical Outlook For Gold & Gold Stocks

Gold and gold stocks remain in the larger correction that began almost 12 months ago. However, both became quite oversold, and a short-term low is now in place.

Gold bottomed just below good support at $1755. It hit a low at $1750, with its net speculative position a hair from a two-year low. Open Interest is at a two-year low.

Rally targets are the 50-day and 200-day moving averages at $1833 and no higher than $1850.

Gold w/ Net Spec Position & Open Interest

The setup for the gold miners is similar. 

They should be able to retrace a portion of the losses in June.

Days ago, my breadth readings showed that 0% of the HUI and 0% of the GDXJ stocks closed above the 20-day and 200-day moving averages. This type of extreme oversold condition usually leads to a rebound.

GDX has upside to $37 and faces some resistance from the moving averages at $36. GDXJ faces moving average resistance at $51 and lateral resistance at $53. 

GDX & GDXJ (bottom) Daily Bars

If Gold and the miners could rally past the May highs, it would signal the correction is over.

That is not my expectation, but it’s important to cover all possibilities.

Keep an eye on the sector-leading indicators, which we covered in our last piece.

These indicators can start to diverge before a new leg higher begins. As we move later into the summer, these indicators can give us a better sense of how much longer the correction will last.

We can also consult history.

Based on market context and recent price action, the two historical comparisons are the corrections in 2004-2005 and 2016-2018. 

The current correction is following an average of the two while being closer to the 2004-2005 version than 2016-2018. It’s also noteworthy that Silver has held up much better than it did during the 2016-2018 correction.  

HUI Correction Analog

Depending on your goals, risk tolerance, personality, and cash levels, you can take advantage of the current weakness, or you could wait for the larger correction to mature and take advantage of quality juniors at potentially more oversold levels.

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William K. 2 months ago Member's comment

Certainly valid remarks about bottoming prices. "Group-think" does play a part of major trends but individual performance is usually the main driver,EXCEPT where external forces are playing games such as "pump and dump.