Precious metals nearing breakout
The outlook for precious metals has changed quite a bit over the last month. In early July, Gold and gold stocks were weak and threatening severe breakdowns below key levels such as $1200 Gold and $21 GDX. Those moves reversed course and now Gold and gold stocks are threatening resistance. The prognosis has turned bullish and with the help of a correcting stock market precious metals could build on their recent rebound.
Below we plot the weekly bar chart of Gold which is testing critical resistance in the $1290-$1300 area. Gold could close the week at its highest weekly close in 2017, just weeks after breaking its 2017 uptrend. That early July breakdown proved to be a false break as Gold has been able to rally back up to resistance. Gold has broken the downtrend line since 2011 but the most important resistance is $1300. With a break above $1300, Gold could be on its way to a retest of the 2016 high at $1375.
Turning to the miners, we find that GDX has already broken its downtrend and the 200-day moving average. GDXJ faces strong resistance at $34-$35. Silver has a little ways to go before it can break its downtrend line but its relative strength in recent days is quite encouraging.
While there are only a few data points in the junior bull analog chart (which is based on our junior indices), it suggests the juniors could be close to starting a new leg higher. If Gold is going to rise to $1375 then the juniors would enjoy a good pop. The analog chart shows the significant upside potential in juniors if Gold were to clear $1375 and advance towards $1550-$1600.
There are several reasons we have turned bullish. First, precious metals were breaking down in early July yet that reversed course entirely. Gold has rallied back to +$1290 and well above resistance at $1240-$1250. If Gold were going to break below $1200 then the rally would have rolled over again around $1240. Second, intermarket activity has turned quite favorable for Gold. The US$ index has not made a new low but Gold has perked up. Meanwhile, Gold is benefitting (as it should) from weakness in the equity market. We think the weakness could continue and drive Gold to $1375.
The bottom line is Gold is now showing strength on both a nominal and relative basis. If this continues then Gold will clear $1300 and the gold stocks (which have been lagging) could push higher in sudden and aggressive fashion.