The gold sector is acting the way we’d want to a counter-cyclical sector to be acting with US and global markets throwing a fit over the geopolitical situation, which may just be an excuse for a needed correction.
We’ve belabored the point that the precious metals need to exceed certain levels to give a bigger bull signal. So why not belabor it again now that the bounce is approaching some key levels?
HUI bounced from an oversold condition at the support area we’d noted previously on this chart, held the break above the SMA 50 and it’s next key level is the SMA 200 (currently at 208.53 and declining). After that, where once HUI needed to get above the November 2016 high to prove a bull case it now needs to get above the April high and the February high in order to set an uptrend.
In other words, it is still a bounce, technically.
I would note that certain quality items, like Royalty companies FNV and RGLD, as noted over the last few weeks, have formed bullish patterns and are out performing the sector. I also notice quality miner GOLD making a breakout above lateral resistance today. Add in smaller items like KL.to, WDO.to, MOZ.to and several others and you can see that money is coming in and these things may be positively diverging the sector.
In short, it’s going to be a stock picker’s market for a while. This could be signaling that regardless of HUI’s struggle to make an uptrend, a stealth bull phase is probably already in play. It could be leading a coming phase when even the crap (and there is a lot of it) bottoms and ultimately rises.
On to gold (GLD), we have a gap up above both moving averages today. Sure it’s a bit hysterical and could fill, but gold has been in a new uptrend since December, unlike silver and the balance of the sector. Also, a gap above two key moving averages – especially if on volume – would be considered a breakaway gap, in hindsight if it confirms the uptrend.
Silver (SLV) is dealing with the resistance of the March low but can bounce to the declining SMA 50 or even the SMA 200. But silver’s status is much weaker than gold’s, which fits the preferred macro backdrop for a coming bull phase in the gold sector nicely. As for the nominal chart, until silver makes a higher high to April, it’s range bound or ‘in the box’ as they say.
If silver remains weak vs. gold, commodities resume downward as expected and most of all, the stock market correction is real and stocks at least under perform going forward, then we’d have a macro picture coming in line for the counter-cyclical gold sector. There are a lot of ifs in there, but these are some of the things that would be consistent with a transition to a real bull phase in the gold sector.
Gold bugs usually get excited however, when silver is leading, not when gold is leading. So there could well be much technical grind ahead before the sector would be declared in a bull market far and wide. But the fundamentals should come first and if they come with still-weak prices, so much the better. That’s what you buy (as a longer-term trader or investor as opposed to a short-term trader, who is probably all over this bounce).
Technically, the sector is still corrective (i.e. has not established an uptrend), but is diverged bullishly by several individual items.
Fundamentally, if the stress on the macro becomes chronic the macro fundamentals could begin improving by leaps and bounds. If the stress is swiftly swept under the rug and everybody gets happy again, the gold sector would likely get beat up. By definition though, it is acting exactly as we thought it would, which is contrary the happy idiots in the broad markets.