Gold miners are facing a key test of resistance as we enter a week that has at least two potentially major market moving events (FOMC on Wednesday afternoon, and non-farm payrolls Friday morning). The gold miners, as represented by the GDX exchange-traded fund, are attempting to break free from a range defined by roughly $26.20 on the downside and $28.30 on the upside:
The gold miners experienced a bounce last week (+2.3%) after support near $26.20 held for the 2nd time in as many weeks. Historic seasonal trends indicate that the gold miners should have the wind at their back beginning next week and the tailwinds should persist through the end of the year (over the last 20 years the HUI Gold Bugs Index has averaged a 4.7% gain from the end of October through the end of December).
In the above chart the GDX is on the verge of experiencing a bullish resolution (MACD bull cross and bullish RSI crossover above median line) if price can close above the red line on a weekly closing basis. A failure at the red resistance line next week could send the GDX tumbling back into the orange wedge for another test of support at the blue line. Bulls should not want to see support tested again so soon, and this is why next week is set up to be a critical test for the goldies.
The Fed is expected to cut rates a quarter point on Wednesday afternoon, however, it will be the Chairman's press conference at 2:30pm EST and any comments on QE or hints of further rate cuts that will hold the market's focus. Friday morning's US non-farm payrolls report also looms large with expectations lowered to a paltry 73,000 jobs created in October.
Turning to the weekly chart of the GDX we can see the lowest weekly close since the correction began in early September has been $26.64:
Friday's high tested the downtrend drawn off the tops since the early September high, which sets the stage for a potential breakout above this downtrend next week. Sentiment is in neutral territory on the gold miners and seasonality will begin to offer tailwinds beginning next week. The stage is set for an upside breakout, however, in the event of another failure at resistance the stage is also set for a breakdown through support that has been tested multiple times in recent weeks.
In other words, a big move is coming in the gold mining sector and it could happen as early as next week.
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