Last year we saw gold, silver, and mining stocks soar into August after the Spring stock market crash. Since then all three have been locked in a sideways consolidation, although the first three months of this year have brought with it a pullback so far year to date in them. For metals bulls, though, things are finally in a position to rally. I say that for two reasons.
First, gold and mining stocks both have reached extreme oversold readings in the past three weeks and have formed a potential double bottom on what is long-term support on gold above $1675. That level marks the lower 200-day Bollinger Band for gold, as you can see from this chart.
The 200-day Bollinger Bands are the pink lines on the above chart. They tend to act as long-term support and resistance for both bull and bear markets. Just with the way gold is positioned this is a major support area and the most likely thing for gold to do is come off this lower 200-day Bollinger Band in April and rally. Even if it remains locked in a consolidation phase, like the three periods I have circled on this chart, one should still expect gold to rally back up towards it upper 200-day Bollinger Band this year. That means a $2000 price target this summer.
This potential double bottom for gold also is happening after the RSI crossed below 30, to give an extreme oversold reading. It did that last month and since then the mining stocks have held up relatively well with the metal. Short-term resistance on gold is now at $1750. A close above that price would be a pivot point that will attract technical traders to get a rally going. Gold needs to generate up days to attract small traders and Robinhood types to buy – they need to see something going up day after day on their app to chase as it is daily gyrations that they focus on.
My favorite indicator for the gold trend is actually the GDX/GLD relative strength as it tends to be a leading indicator for both. When it goes up it means that mining stocks are outperforming gold. In major gold bear markets that indicator tends to go down, but it has been going sideways in the past few weeks and is in a position to turn up.
If this ratio breaks out to rally it would mean that gold stocks are going to rally more than gold does. If gold just went back up towards its upper 200-day Bollinger Band the GDX gold stock ETF and many mining stocks would easily make new highs. Silver also probably would do the same.
When it comes to the GDX you can see that solid support is now at $30, the point of its February low and lower 200-day Bollinger Band. At the same time resistance is at its most recent high around $34.0. If you are looking for a pivot point, look for a close above $34.00 to trigger a rally back up towards the July high.
This has been a tough couple of months for gold and mining stocks, but things are finally positioning now for the start of a new rally to begin in April.
-Mike
