The problems in the Middle East are messing with an important component of the gold mining fundamental case, crude oil. So let’s check the status.
Gold vs. oil is on a MACD trigger and above critical support by weekly chart.
Gold vs. broad commodities is still in a bottoming pattern with critical resistance just above.
The hysteria thus far has done nothing to hurt the ‘real’ price of gold, which is the main consideration to a bullish gold miner view.
The HUI-Gold ratio has merely dropped to near the point we have identified as support over the last week.
HUI daily should hold 240 to 250 to remain okay. The SMA 50 is at 240 and the EMA 50 is at 253. I use the two together to gauge potential short term trend changes. The cross upward of the EMA over the SMA is a positive.
The weekly view gives a better idea of what I think may be in play, assuming crude oil does not go orbital and wreck the entire miner investment case. The TRIX has triggered upward and this is usually a nice confirmation of the MACD. Let’s watch the weekly EMA 10 (currently 255 and now turned upward) to see if we can get some support around there (250+).
Bottom Line
Yesterday’s bearish miner reversal was something to behold. It seems like an early sign that gold and especially over bought silver could start to encounter some turbulence at or just below the resistance levels we have been noting as Syria begins to be digested.
This may have begun the process of making a right side shoulder on what is still a potential bottoming pattern on HUI. I like the way gold is holding its own vs. crude oil. If that ratio fails however, the gold mining fundamental case gets put on the back burner. Inflammatory events (even big ones like Syria) are usually not sustainable in their effects on markets. So let’s filter the noise going forward and stick with facts.
The fact is that the real price of gold is holding its own and the miners are correcting. This could provide a buying opportunity sooner rather than later. The media are all about Syria but I believe the market was correcting before Syria was even a twinkle in the bear’s eye. If gold does keep pace with oil and the general ‘real’ price remains constructive to bullish, the 250 area looks like a decent ‘buy the support’ point. Risk could be limited to below the SMA 50, which is at 240. But ultimately, a bottom breaking ‘lower low’ does not come into play until 219. Hence, 220’s could be the buy point but I would not count on that being attainable.
Regardless of whether people are trading, accumulating or holding, we will continue to focus on the state of the fundamental case. As soon as I see something untoward with respect to the gold mining case we’ll do an update. Until then, we should endure the emotional hysterics in the markets and see how things shake out. The path previous to the acute Syria stuff was pivoting to bullish for the precious metals and bearish for stock markets. I want to try to stay focused on what was in play before the hysterics kicked up.
