Gold Prices: Why Isn’t Gold Going Up? Part III

| February 22, 2018 | 0 Comments

gold pricesAnyone following gold prices lately knows it’s been an up-and-down battle.  Gold initially fell with the stock market during the recent dip, looking a lot like people just wanting to get out of everything.  Then “suddenly” gold popped up when people noticed the fundamental relationship to the also-falling US Dollar was getting out of hand, making gold relatively cheap.

Then gold wasn’t able to hold on to its gains when people apparently realized that despite their almost-panic, absolutely nothing had changed in the big picture. So the dollar popped and gold prices dropped.

Yet through all this, there has been some rhyme and some reason.  Unfortunately, that rhyme and reason has been “periodic disconnects from fundamentals, then snap-backs to the fundamentals.”  What this means is that trader and investor sentiment is pretty much driving the market right now, downward in moments of upset, and upwards in moments of apparent sanity.

Today let’s look at the chart for the senior gold miners, as represented by the ETF GDX and see if it’s trying to tell us anything.

VanEck Vectors Gold Miners ETF

(courtesy Fidelity.com)

Let’s start at the top and work our way down.  Over the past 3 months, GDX shows a pattern of lower highs, as evidenced by the downward sloping line along the tallest peaks.  It’s always important to note that nothing goes up forever, so the smaller waves in between the peaks are interesting in that they’re steadily-up or steadily-down after “moments of inflection”.  This usually means the market has some sanity, and wants to trend – but may not be finding enough consistency in the environment to do it.

Related: Why Isn’t Gold Going Up?

So let’s look at the lows and see what they say.  The lows-line farthest to the left shows consistently lower lows as the senior miners were coming down from their September peak.  This is also during a period of lower highs, so – consistency.  Lower highs and lower lows are the definition of a downtrend, after all.

Then we get to the two lowest valleys, and we find a minor conundrum. Do we choose the lows of the day or the closing price as our reference?  If we choose the lows of the day, then we have lower lows again.

But if we chose closing gold prices, we have a very-slightly-rising bottom.  The difference is measured in cents, so not much rising at all – in fact, this Gold Enthusiast would call it a flat bottom, or a good old fashioned technical support price level.

What makes this one difficult to trade is the uncertainty posed by the very low intraday low.  We either call a bottom at the closing lows at 21.50, or we call the bottom at 21.  That 50 cents might not seem like much but it’s a lot when you’re trading large share volumes at this price point.  At roughly 2.5%, it’s enough to affect a risk-reward trade decision.

And that’s what’s made gold prices so difficult since September.  There have been very few times when moves have been big enough and clean enough to overcome “noise” in the chart. Fundamental traders have been buying or selling gold at their chosen price points, as gold appeared to be cheaper or more expensive than things like the US Dollar or the relationship to the P/E ratio.

Technicians have been stuck with taking or passing on trades that are not as clean as they’d like.

And that’s what’s made trading gold difficult lately.

If GDX holds 21.50 or 21, you can expect to see traders pile back into the senior miners.  Earnings reports have generally been good this season, with costs well below revenues for almost all miners.  Coupled with decreasing stock prices, senior gold miners currently represent incredible values compared with sectors like internet-tech or bio-tech.  It’s only a matter of time before some country screws up politically, analysts pop up their heads and look at the gold sector, and pile back in.

The problem, of course, is no one knows when that will happen.

Signed, The Gold Enthusiast

Disclosure: The author has no position in any mentioned security.  The author is long NUGT and JNUG, and may day-trade these positions in the next 48 hours.

 Related: Why Isn’t Gold Going Up? Part II

 

Note: This article originally appeared at The Gold Enthusiast.

Tags: , , , , , ,

Category: Gold

About the Author ()

Mike Hammer has had a wide-ranging career, with trading and investing as a continuing theme. Mike graduated from UC Berkeley with a business degree, then worked with Macy's in their operations arm. He left Macy's and spent a summer trading his own account, which taught him a lot about trading in general and markets in particular. Trading through the Black Monday and the Crash of 1987 showed him how most people are unprepared for upheavals in their trading. He then joined Waddell & Reed as a financial advisor, helping regular people understand their finances and meet their life goals. Then came the usual story - Mike met and married the lady of his dreams. They moved to upstate New York, where Mike worked first for a small manufacturing consulting company, then Cornell University. While loving the work and the higher-education atmosphere, Mike missed the world of finance. Eventually, he signed up for stock trading coaching with the Adam Mesh Trading Group, to learn from people who understood modern markets. Within a year, Adam asked Mike to become a stock trading coach. Since then, Mike has trained over 200 individuals, spoke at several national conventions, and is a frequent contributor to conference calls across the Adam Mesh community. Mike writes The Gold Enthusiast daily newsletter, runs the Golden Hammer trading service, and participates in the Mesh Private Portfolio. He also keeps a position in international education which keep him in touch with "the student mindset". Mike closely follows the gold, energy, and financial sectors. His motto is "Plan your trade, then trade your plan!"

Leave a Reply