Two weeks ago we posted that we believed that gold and gold stocks were consolidating. We now believe that the consolidation is almost over and precious metals are ready to move higher. Both GLD and GDX have met our consolidation targets of about 50% and 33% of their respective rallies out of the May lows. The fact that GDX is holding up relatively better than GLD is a very good sign for precious metals going forward. In addition, GLD has fallen hard enough to shake out some weak hands and is now back to its downtrend line. A break above that line should be a good low risk point to go long both gold and gold stocks. Our Twitter Sentiment indicator for GDX is also showing positive signs for precious metals. Twitter sentiment is diverging from price on a daily basis a fewer traders make negative tweets on each further drop in price. The large drop in price last Friday didn’t generate as much negative sentiment as the smaller
Over the past several months gold (GLD) and gold stocks (GDX, GDXJ) have given a few low risk opportunities for you to accumulate precious metals. We posted in late July that although there was still risk to the down side in precious metals we would be buyers if we held absolutely no gold in our portfolio. Then in early September we mentioned that GLD and GDX had broken their respective down trend lines. Once the trend lines held we felt there was a low risk entry being offered by precious metals. Today we’re back to the low risk entry points with gold stocks acting well. After the breakout GDX ran strongly until GLD hit resistance in the 174 area. This point marked the last two previous peaks in GLD. These peaks were made while GDX was diverging and continuing on its downward slope. GLD has given up 40% of the rally out of the May lows, while GDX has only given up 25% of it’s rally. It wouldn’t be unreasonable
We’ve been following gold and gold stocks for several months waiting for the current correction to end. Late last week GLD and GDX both broke above their down trend lines. The break also came after a series of higher lows in GLD and GDX. This chart pattern signifies that the down trend is most likely over. At the least, it provides a low risk entry point for a trade in precious metals. You could buy at these levels (or wait for the overbought conditions to abate and a small correction) and use the down trend line as a stop. All of our Twitter sentiment indicators for GLD, GDX, GDXJ, and SLV have strengthened substantially over the past few months. The confirmation of the new up trend in GLD came at about the 155 price level as a two week correction couldn’t drive smoothed sentiment below zero.
A month ago we posted about precious metals where we said it wasn’t quite time to buy gold stocks. Fast forward to today and we’re still watching and waiting. The chart below shows that nothing dramatic has changed. GLD and GDX are still moving slowly sideways to up and closing in on their down trend lines. The next several days will create a break or a failure at the trend line. Belief that the Federal Reserve will initiate another round of quantitative easing is currently pushing gold and gold stocks higher. We don’t rely on the news to make our decisions so we’re more interested in how price reacts at critical support or resistance. We believe that a good break of the trend line will provide a low risk opportunity to buy GLD and GDX. A break of the trend line for GDX will also correspond with a break above the recent highs. We hold a small core position in GLD and GDX as a hedge against the
My reading on gold stocks is that they’re probably not finished declining. GLD has been trying to hold the 150 area for nearly three months while GDX and GDXJ have had a rally with a trend line failure. Previous failures have resulted in fairly severe sell offs. However, there is some good news in the charts. Notice the volume on the recent rally was very high for GDX. Then as it started selling off as volume is drying up. This is different than the two previous rallies that failed (they had low volume rallies and higher volume sell offs). So what would I do? If I held absolutely no precious metals in my portfolio I’d be willing to dip my toes in the water at these prices as a hedge against the European debt crisis escalating. The position would NOT be an inflation hedge. It would be a hedge against a confidence failure in the Euro as a currency. I’d be buying with the expectation that I’ll add more to