After a four-day rally, gold stalled out this morning. The yellow metal fell as low as $1,886.80 before rebounding this afternoon. Silver and mining stocks likewise got whipsawed today. Regrettably, the intraday volatility triggered the stop on ProShares Ultra Gold Miners (GDXX) at $42.25, closing this trade with a very small gain.
It’s possible that this brief rally in precious metals off last Friday’s low is all we get, before gold and silver roll over again to lower lows, as the cycles are forecasting. If so, then it’s a sign of weakness for metals, which means gold could decline even more than expected before bottoming, most likely in November.
Keep a watchful eye on Friday’s reaction low of $1,262.80 in gold. If that’s broken this week or early next, gold could quickly decline further to test support at $1,250-$1,260 an ounce. Then the yellow metal should stabilize. Ditto for silver and mining stocks.
Mining stocks, as measured by the NYSE Arca Gold Miners Index, outperformed both gold and silver last week, gaining 2.3%. And there are bullish signs telling me the miners could ultimately rally higher before correcting again. Here’s why …
First, we know from experience that mining shares often lead gold and silver at key inflection points. The fact that mining stocks outperformed last week, tells me this rebound rally could extend higher still, perhaps after a brief pause.
Second, investor sentiment toward gold is turning bearish, and from a contrarian perspective, that’s exactly what you want to see for gold to put in a major bottom.
As you can see in the chart above for example, investors pulled $546.2 million out of the SPDR Gold Trust (GLD) last week alone.
That’s the most net selling from retail gold investors since July. In other words, the odd-lotters are getting discouraged by the recent pullback in metals.
Gold coin sales are likewise declining here in the U.S., down by two-thirds in the first nine months of this year from the same period in 2016, according to the U.S. Mint.
This is all music to my ears because lasting bottoms are built on negative investor sentiment. So, right now I’m rooting for sentiment to turn even more bearish in the weeks ahead. Which should set up the metals for a major move higher very soon.
The cycle models aren’t in complete agreement on the exact timing of the next upturn. But that isn’t unusual, because different asset classes follow their own unique patterns.
* The forecast for gold and senior mining stocks point to a turn date in mid- to late November…
* The cycles for junior miners and silver are both suggesting an earlier turn date, perhaps as soon as Halloween!
The cycle forecasts should come into better alignment as time passes, and I’ll let you know asap if the expected turn dates shift. As we stand right now however, the most likely window for a bottom in precious metals is three to six weeks away, perhaps a tad longer for gold than for mining shares. So, there is still plenty of time to get well positioned for the next big move in the metals.
Meanwhile, I want you to aim for bigger gains from an extension of the rally in mining stocks, which as mentioned above, are performing stronger than gold and silver right now. So, it makes sense to take another stab at GDXX.
HOWEVER, I only want you to re-enter this trade on renewed strength, so I’m recommending you use a buy-stop order above the market.
This simply means that if GDXX trades up to the buy-stop price shown below, you’ll buy the shares – but not until this renewed strength is confirmed by the price moving above the recent high – a sign that the rally in miners is about to extend higher.
Using 5% of the trading capital you have set aside for this service, BUY to OPEN ProShares Ultra Gold Miners ETF, symbol GDXX with a buy-stop at $44.29. This order is good-till-canceled.
And this time, don’t use a hard-and-fast stop that could be picked off by market makers. Instead, I’ll monitor an end-of-day close stop for you. Get this trade placed right away and continue to hold all open positions, and maintain your open limit orders. And stay tuned for more updates on gold, and all your positions.
Good investing,
Mike
