Yellow Metal's Outlook
ETF Daily News | Sep 25, 2017 11:13AM ET
In recent weeks both metals and miners have declined somewhat sharply after reaching resistance. Gold peaked just below major resistance near $1375/oz while GDX — the biggest gold-mining ETF — peaked at its October 2016 and February 2017 highs. If precious metals can break through this resistance, then a major move higher will commence. However, the recent selloff, coupled with a lack of relative strength, suggests the road to a breakout could lead well into 2018.
On the daily chart below, we can see that gold has retreated after testing important trend-line resistance. Although gold’s long-term technical structure leans bullish, gold is currently showing relative weakness. Gold against foreign currencies (gold/FC) did not make a higher high and gold/stocks barely made a higher high. Both ratios may need to hold their blue support lines in order for gold to remain above $1260/oz.
Turning to the stocks, we see that GDX, like gold, was turned back at major resistance. GDX has now tested $25-$26 three times in the past year. On a clean break above that resistance, GDX should retest its 2016 high. It has key support above $22 and at $21. GDXJ will not gain any momentum until it breaks above the September high around $37.50. It has support at $31 and $32.
There are two things that concern us with respect to the medium term outlook. The precious-metals complex did not surpass its 2016 highs even though the US Dollar index made a new low. That is a negative divergence. Secondly, both miners and metals have formed a bearish reversal on the monthly charts. That is more significant than a daily or weekly reversal.
While gold could eventually be headed for a major breakout (perhaps in 2018) the road ahead could be difficult. A breakout anytime soon is unlikely. The relative weakness of the sector in the face of a weak USD and the inability to hold gains into the end of the quarter suggests that gold and gold stocks will remain mired in their long-term bottoming patterns. As we noted several weeks ago, we want to continue to accumulate the best opportunities in juniors on weakness.
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