For the last three weeks gold/silver and precious metals mining shares have been mired in a corrective phase. After reaching a frothy overbullish sentiment extreme on August 7th, gold has consolidated between $1920 and $2000 with the most of the recent price action focusing on an even tighter range between $1930 and $1960 (as I type these words gold is testing the lower end of this range):
Gold (Daily)
On August 12th I wrote:
"...I think we're in for a couple weeks of sideways to lower price action, and probably some more shaking of the trees in the junior mining sector. I don't think there is any hurry to call a bottom and get aggressive from the long side. Even if gold bounces back to $2,000 today it doesn't mean it won't retest the $1870s next week. "
Gold did bounce back to over $2,000 (on August 18th), and now it seems that a retest of the $1870s could be imminent. A retest of the August 12th low near $1874 now lines up with a rising 50-day moving average and offers a logical spot for a 'double-bottom' to be put in place.
Another drop below $1900 in gold would also likely bring the junior gold miners to the brink of completing a head & shoulders top that has been brewing for a couple weeks:
GDXJ (Daily)
Regarding H&S patterns it's important to note that they are not 'completed' until price has decisively broken below the neckline (support), which in the case of GDXJ is near $54.50. In 2020, it's also important to be cognizant of the preponderance of 'failed breakdowns'; price can often break support intraday, only to rally back above support by the closing bell, resulting in a failed breakdown.
Given the fact that gold, gold miners, and the GDXJ (junior gold miners ETF) are all in strong long term uptrends we should give the benefit of the doubt to the bulls until proven otherwise. In uptrends, buying at support tends to be a profitable proposition more often than not.
Another point worth noting about the GDXJ daily chart above is that there was only a minor expansion of volatility and volume near the recent highs - this is NOT characteristic of a major long term top. We would normally see more extreme price action (parabolic), and evidence of much greater market participant participation (volume) if this was it, THE top.
All of this has me wondering if a major buying opportunity is approaching over the coming days.
Perhaps an important price low in gold and gold mining shares will coincide with Fed Chairman Powell's speech on Thursday?
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.
