Take a look at the charts of any gold stock index (GDX, GDXJ, HUI) and it’s clear they are in a downtrend.
In the meantime, don’t try to catch falling knives or chase weakness as there will be plenty of time to get into cheap juniors that can triple and quadruple once things really get going.
Long-term oriented investors and speculators should be aware of the near-term trends but they should also be aware of the conditions that will lead to a shift from a bear market to a bull market.
Gold was well bid during the equity correction but it could not breakout then and has retreated as equities have roared back.
The rebound in the precious metals sector continues.
Gold stocks blew past their 200-day moving averages, gold over $1300/oz. Now let's take a technical look and focus on key support and resistance targets.
Why should we expect gold stocks to breakout this year? Jordan Roy Byrne from The Daily Gold provides five reasons.
We’ve been persistently bearish on precious metals since September and that has annoyed our readers.
"Back in March of this year we noted that the gold stocks could be following the path of recovery of housing stocks since their 2009 bottom."
While we expected the gold stocks to correct and test GDX $22 and GDXJ $35, we did not expect it to happen so quickly.
Gold is clearly broken but its decline is due for a pause. Gold has been strongly correlated to the bond market which may have made an interim low last Wednesday.
The gold stocks continue to correct their epic +150% rebound that began in January and ran into the summer.
The trading month doesn’t always end on a Friday but when it does we like to take a look at the monthly charts.
There were some hopes that a non-move by the Fed would end the current correction in precious metals and spark a move to new highs. Unfortunately, the Federal Reserve cannot override the supply and demand component of the market.
Over the past two weeks the precious metals complex has retested its Brexit breakout and rebounded back to the July highs.
One minute you are projecting another 5-10% downside and the next, the market has left lower prices in the dust.
The amount of Gold in GLD has risen steadily even as Gold consolidated a few months back and has been stable in recent weeks even as Gold and gold stocks correct their Brexit breakouts.
Our research continues to argue that the current, record rebound in gold stocks will continue.
Zweig fails to mention anything about the importance of real rates and instead resorts to the typical anti-gold arguments.
Given the reaction to the jobs news, the probabilities say the juniors are more likely to follow the red path (2009) or something close to it then the blue path (2001).
Despite maintaining an overbought condition and despite the recent bearish posture of many sector pundits, the gold stocks have yet to correct more than 11%.
All weakness has been bought as a wall of worry has been built and the sector emerges from a historic low that could be on par with the 1942 low in the stock market.
In recent weeks readers and followers of various gold centric websites have been bombarded with bearish commentaries from pundits and analysts forecasting a correction.
There is logical reason to be cautious if not bearish at this point.
The longer gold stocks hold above initial support, the greater the chance they are building a bullish flag consolidation.