It's Time For Consolidation And Lower Volatility
Jordan Roy-Byrne, CMT | Jun 11, 2021 04:35PM ET
Gold endured a 20% correction over eight months. A 15% rebound followed that in two months. It has retraced some, but not a majority of the losses.
This action is all part of the handle of a super bullish cup-and-handle pattern.
The handle itself is part of a much larger bullish consolidation, but the market is approaching resistance within the handle.
Below we plot VanEck Vectors Junior Gold Miners ETF (NYSE:GDXJ), VanEck Vectors Gold Miners ETF (NYSE:GDX), gold and silver.
As you can see, gold has been contained by $1,900, while silver has yet to break above resistance at $28.50. It's possible gold could push up to resistance at $1,920 or even $1,950, which would align with the miners testing resistance from Q4 2020.
During a bull market, sustained corrections in gold typically end in bullish consolidations. In other words, there is the initial decline, a rebound and then consolidation.
In the chart below, we plot the average of six historical bull market corrections in gold along with the average of the three corrections that could be most comparable to today.
Gold has not tracked any individual correction closely but has mirrored both averages, which now argue for a bullish consolidation into year-end.
Consolidation and time can lead to declining and lower volatility, which is a necessary condition that facilitates big, impulsive moves.
We plot gold below and several different indicators, including the Gold Vix (GVX) and Average True Range (ATR). The vertical lines show points from which gold made big moves.
These indicators are declining, and I expect they will bottom out around the end of this year to early 2022.
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The second half of the year could be the setup for the next leg higher in precious metals, which I anticipate could be one for the history books. There is time to prepare your portfolio, but some quality juniors have already started to move.
I've positioned myself in companies with the best combination of upside potential and fundamental quality. These are companies you can buy and hold for a few years that have the potential to be 5,7, and 10 baggers after gold breaks past $2,100/oz.
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