June brought a big rally in gold as it surged through $1400 an ounce up to $1440, but yesterday on the first day of July gold fell back below $1390 as the G-20 meeting and Trump/Xi trade truce brought some selling into the metals.
In reality, the chart itself suggested that a pause was coming in the rally and that a period of consolidation was going to come. Sectors that breakout of a long-term base typically do that afterwards and then you will see stocks inside the sector form famous “cup and handle” charts.
Take a look at this chart of gold and notice how the 20-day Bollinger Band width indicator on the bottom had gone straight up in June to go over 10.
That happens when something has a big price move in one direction and typically leads to a pause in the action, which in time causes the bands to contract again and for the width indicator to go back down.
That’s what we can expect to happen in July and that would mean we should look for prices to stabilize here in the $1360-$1390 zone and for gold to then consolidate and base above that level to prepare itself for the next big move higher.
On my chart you probably see that I projected out where the moving 50-day and 150-day moving averages will be in the next 60-days and how we should expect to see the daily stochastics get back below 20 to give an oversold “buy” alert too in the next few weeks.
Now my first thought is that we’d see gold go sideways and then breakout after this coming end of the month July FOMC meeting, at which the Federal Reserve is almost certain to lower interest rates. Indeed it was after the last FOMC meeting that gold broke out.
That could happen again, but some of these momentum indicators, such as the Bollinger Band width indicator, hit such an extreme reading that gold may actually consolidate in August too.
Whatever the case, the start of a consolidation in gold prices will lead to a great buying opportunity this month for those that did not buy before the June breakout.
And the same is true for gold stocks as we can see from the GDX ETF.
So we can look for GDX to form a new support now above the $23.00-$23.50 zone in July and also consolidate and go sideways. I own the GDX ETF.
The thing is even if gold consolidates all of the way into Labor Day there will some mining stocks leaders that simply breakout ahead of the next breakout in gold again and continue to go higher and higher.
And the best way to buy into gold and any leading stock market sector is on a pullback. The stock market masses not in gold, silver, and the mining have been given a great gift.
The question is will they take advantage of it?
There are going to be plenty of other buyers out there this month accumulating, but will the small fry continue to remain a spectator?
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-Mike
