Here’s a quick update on the metals: Gold appeared to break out on Friday above the psychologically important $1,300-a-troy-ounce level and traded even higher on Monday morning, moving above $1,308.
But, in the last half-hour of New York pit trading, gold made a nasty reversal to the downside, selling off on heavy volume. Worse, the selling continued after hours in electronic trading, sending gold down to $1,297.20, well off its highs for the day.
This reversal is one big flag. Another red flag can be found in the fact that gold-mining stocks underperformed the metals last week, which is a big red flag in my book, because miners had been leading the way higher during the rally.
Just look at last week’s price action. Gold climbed 2.1% to close last week above $1,303, but NYSE Arca Gold Miners Index moved up just 1.4% last week, and the more volatile junior miners gained less than 1%.
Mining shares should be leading metals prices higher, and junior miners should be outperforming them all. But this relative underperformance tells me the recent rally in gold, silver and miners may already be running out of steam, with another downtrend looming, as the E-Wave cycle chart (above) is signaling.
This morning, with gold and silver lower overnight, an opening flush-out hit the miners. Mining shares are off their lows as I pen this issue, but these lows mark critical support that must be defended here by the bulls. Otherwise, the counter-trend rally may be over, with lower lows ahead.
For the time being, continue to hold your ProShares Trust ProShares Ultra Gold Miners ETF (GDXX), to see if mining stocks can rebound off this support level. Remember, I’m closely monitoring a stop for you on GDXX. And if support breaks, you can expect a trade alert asap to exit the trade. Plus, I won’t hesitate to reverse field and recommend an inverse ETF designed to profit directly from a renewed downtrend in precious metals.
But please wait for my signal. In the meantime, continue to hold all current positions and stay tuned for more updates.
Good investing,
Mike
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