Today the gold stocks are breaking out of a simple triangle consolidation pattern that has played out for the mining sector since the start of this year. The miners had a huge run last year, but all bull markets have periods in which they pause and consolidate to digest their gains and prepare the way for a new move higher. Take a look at the VanEck Vectors Gold Miners ETF (NYSEARCA: GDX) technical analysis chart as it shows you what is happening.
The GDX ETF broke through a simple triangle consolidation pattern today. Now it has done this after testing and resting on its 150-day moving average, which is a classic long-term support level during a bull market. Now all systems are go with several key big cap mining stocks even going to new highs today, such as Newmont Mining (NYSE: NEM).
I own positions in both GDX and NEM. The crazy thing about these moves is that when it comes to the small traders there is evidence to suggest that in January they had been trying to do more short selling and betting against gold and mining stocks than buying them. They got caught up listening to mistaken people calling for gold crashes and tricked by the action in the US dollar index. Gold is over $1600 this morning, but both have been rallying for almost a year now.
This has scared people out of buying gold, because historically gold and the US dollar index tend to trade the opposite to one another. But this has not been happening for almost a year now. I explained earlier this month that the big reason why is that gold is being influenced by the action in the bond market now instead of the currency market.
This is a fascinating moment. I did an interview for Ike Iossif of marketviews.tv yesterday about what is happening outside of gold and silver now with other commodity markets such as energy and agriculture. To listen to that check out this youtube video:
Gold above $1600 is certainly a price level that is going to cause those betting against the metal to reconsider what they are doing. And it’s going to bring in some people who have been in the sidelines in too. The NEM price action will cause even some institutional investors to get involved.
-Mike
