The precious metals bounced on Tuesday with Gold gaining nearly 2% on the day. The gold miners followed suit with a move of 4.5% on the upside. Are we now looking at a gold rally? What changed versus last weeks selling? I am not going to speculate what or why gold moved higher today anymore than why the thirty-year treasury bond rallied today. Safety rotation would be one guess relative to the gains. Speculation about global economies weakening and Greece is back in the picture about debt and default. Pick any combination or all… the fact is uncertainty in markets tends to look for alternatives and gold qualifies.
The chart of GLD below shows the downtrend that has been in play along with the reversal or trend change being attempted currently. Since hitting a low on November 4th the the last five weeks has been a volatile progression of an upside move within a defined trading channel pointing to the upside. Thus, anyone wanting to own gold would need to have the ability to stomach the volatility and market swings in the metal. If we added bollinger bands to the chart we would see a break today above the upper band showing acceleration. The next resistance will come into play near the $119.75 mark. Unfortunately that is close to where the metal closed today and thus worth watching and letting it set up the next entry point if the upside move continues. in the metal.
If gold is moving higher the gold miners are likely to follow the lead. GDX the ETF for the gold miners was up 4.6% and the leveraged version of the ETF… NUGT was up 14%. Why the disparity between how much gold move (2%) and the miners (4.6%)? Simply put the miners have been sold more aggressively than the metal and that would allow a bounce to move up more aggressively as well. The bigger question is will the upside continue? Fundamentally it is truly dependent on how much gold rises and the sustainability of the move going forward. The chart below is GDX and it is clear to see it has not been able to break the downtrend of the current move off the July/August highs. The fund fell 39.5% from the peak in August to the low in November. GLD fell only 14.2% top to bottom for the same period, thus the need to make up for more lost ground. The resistance at $20.30 is still in place and with the recent volatility in the metal the stocks have not been able to mount a sustainable run on the upside to breakout. This is worth watching as well going forward.
Below are the charts of Silver (SLV) and the silver miners (SIL) to give you some comparison between the two metals and what opportunities if any that may be available. The first, silver finally today broke the downtrend line that has been in play since July. Needs to follow through and find some buyers if the metal is going to establish the upside again. The second, silver miners shows the consolidation at or near the lows. No breakout or acceleration from the base and equally worth watching for some upside opportunity if the metals can find firm footing to push both higher going forward. Remember both have plenty of volatility day-to-day and you have to manage risk relative to the opportunity.