Gold Rally Waiting in the Wings

Looking at my list of ETFs that I track regularly, energy, industrials, financials, bonds, utilities, transports and gold miners were showing green on a day when the major indexes were down slightly. For the most part they made sense, the defensive sectors, flight to safety sectors and then there is gold miners? Why? Gold was actually flat on the day and is in the process of testing a key support level, but yet the miners posted a solid gain… did I miss something in the reports and scans relative to gold prices? Not sure, but below we look at the charts and add it to our watch list of things to follow moving forward.

Looking at the chart of SPDR Gold Trust (GLD) below you can see the price continues to flirt with support at the $123.50 level. That corresponds to the price support at $1277 on the metal, of which was touch again in intraday trading. We have been discussing the outlook for gold and what is driving or in this case, not driving the price? Demand is flat, inflation is “under control” according to the Fed, and the dollar is gaining slightly in strength. Overall there is no momentum relative to the metal and that leaves the traders to push price up and down. A break of support a this level would invite the short sellers into the mix, a bounce back above the $124.50 level may invite the upside traders back into the mix, but until there is a defined catalyst it is not likely to accomplish much.

gld

 

Keeping in mind what we see on the chart above, the chart below shows some divergence in the price of the gold mining stocks today as seen in the Market Vectors Gold Miners ETF (GDX). They were up 2% as gold was flat. This is worth our attention looking forward as you would anticipate gold to rise or the miners to fall. Either way it is a trading opportunity short term.

GDX

Taking this one step further we can scan or filter through the holdings of the ETF to determine what is leading and it may give us further clues relative to the movement of GDX today. Seabridge Gold (SA) announced an asset sale today and pushed the stock up 6.7% to lead the sector, that is a one time event and not likely to add much more on the upside near term. Harmony Gold (HMY) was up 4.1%, but no real news. I found it interesting reading the news and comments of the top performing stocks. There were plenty of comments on a top being establish in several stocks, overbought indicators in others, and nothing about the potential upside looking forward. There was nothing overly positive to define the move in the stocks of late. My summary of the comments would be the sector is going to move lower, not higher. Of course taking a contrarian view is always an option, but then you would have to believe the metal prices are going to rise near term. At this point I am going be Switzerland and be neutral. It will become clear which side of the trade to be on soon enough, and I have it on my watch list of opportunities to take the side that shows the greatest potential.