Gold Runs Amok!
Gold ran amok in premarket trading yesterday…
The yellow metal traded in a wild $13 swing between $1,303 and $1,316 before setting back into a tight range at $1,307 in regular market trading hours.
What caused the wild early morning action?
US investors were digesting the latest consumer price index (CPI) reading. While the monthly change met analysts’ consensus estimate of a 0.3% rise for June, the year-over-year reading is still sitting at a quite noticeable 2.1%.
Even though this is basically at the Federal Reserve’s 2% target rate, plenty of investors and economists are asserting the recent inflation uptick is the start of a bigger run.
Obviously, we’ll need more inflation data to see if there’s any truth to it…
Until we get it, all we can do is look to the charts for a hint of gold’s future direction.
As you can see, the yellow metal is trading just shy of an important multi-month trend line near $1,350(red line). Since gold ran to test this area on July 10th, only to sell off sharply in the following days, bears will likely have the upper hand for the next few weeks.
It’s not out of the realm of possibility to see gold trade to technical support near $1,275 in the near future.
However…
There is something very interesting occurring in gold miners. In spite of the recent selloff in gold, miners are holding onto their massive June gains quite nicely. In fact, the Market Vectors Gold Miners ETF (GDX) is still trading near early March resistance at $28.
As you’re likely aware, GDX holds a basket of the world’s top gold producers including Goldcorp (GG), Barrick Gold (ABX), and Newmont Mining (NEM).
Take a look…
So far, miners are holding up nicely in spite of the recent downturn in gold. Whenever miners are outperforming gold, I view it as a constructive sign for the yellow metal in the long run.
In other words, while bears may have the upper hand in the gold market from a technical standpoint right now, their influence may be short-lived.
Bottom line…
Year-over-year inflation readings are still sitting near multi-month highs. That fact, mixed with the outperformance of gold miners versus gold in recent trading, leads me to believe this year’s bullish gold run is far from over.
Until Next Time,
Justin Bennett
Category: Gold
