Gold’s Sudden, Newfound Relative Strength

Three weeks ago we discussed how Gold needed to perform considering the US$ index was likely to bounce due to an oversold condition and extreme bearish sentiment.

We wrote: “Simply put, Gold will have to prove itself in real terms if it is going to hold its ground or breakout as the US$ begins a likely bounce.”

The US$ index has enjoyed only a slight rebound but Gold has maintained its 2017 US$ weakness induced gains because of its strong relative performance. Below we plot the daily line chart of Gold and a number of ratios: Gold against foreign currencies (Gold/FC), Gold against Equities and Gold against Bonds. Since the July low, Gold has showed good nominal and relative performance.

The key has been the strong rebound in Gold/FC and the breakout in Gold/Equities. Gold/FC has broken above two trendlines and is now testing its 200-day moving average. Meanwhile, Gold/Equities has broken above one trendline and has regained its 200-day moving average. It would be very bullish for Gold if Gold/FC pushed through its 200-day moving average while Gold/Equities pushed above trendline 2. Those moves would likely accompany a Gold breakout through $1300/oz but more importantly, they would put Gold in a position of trading above its 200-day moving average in nominal terms and against the major asset classes (stocks, bonds, currencies).

Although Gold failed to break above $1300/oz today (Friday), it remains in position to do so because of its renewed strength in real terms. As long as the US$ index does not rally hard, we expect Gold to break above $1300 and reach $1375. The gold stocks as a group have been lagging recently but in the event of a Gold breakout, we foresee significant upside potential as the group could play catch up. Consider learning more about our premium service including our favorite junior exploration companies.

Jordan Roy-Byrne CMT, MFTA

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TheDailyGold Premium Update #530

The 33-page premium update was published, uploaded to the members section and emailed to subscribers early Sunday AM.

We covered the outlook for the sector and among other things, commented on the latest developments in a handful of companies we own (p4-p6).

Below is part of our page 1 summary:

We have officially turned bullish (as per recent flash updates) as Gold has perked up in real terms exactly when it had to and as Gold and gold stocks trade very close to key resistance levels. Gold has already rallied back to as high as $1294 and the most encouraging thing is it is a broad based move in real terms. In other words Gold is suddenly trending higher against foreign currencies, equities and bonds in unison. That is the seeds of a real Gold bull market, not what we’ve seen for most of 2017: a surging stock market, weak US$ and muted gains in precious metals. It is a fledgling development but if it continues it should carry Gold through $1300. Most important is the outperformance (of Gold) against the stock market.

The North Korea story has certainly helped Gold and if/when tensions calm down Gold could come off by $20-$30 before making a run again at $1300. Key daily support is at $1280 and $1260. The US$ index could also rally but as we answer in the Q&A section, Gold has been more tied to the Yen which has a slightly stronger case than the US$ for a sentiment rally. If Gold remains strong in real terms that can mitigate the impact of a stronger US$.

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Precious Metals Nearing Breakout

The outlook for precious metals has changed quite a bit over the last month. In early July, Gold and gold stocks were weak and threatening severe breakdowns below key levels such as $1200 Gold and $21 GDX. Those moves reversed course and now Gold and gold stocks are threatening resistance. The prognosis has turned bullish and with the help of a correcting stock market precious metals could build on their recent rebound.

Below we plot the weekly bar chart of Gold which is testing critical resistance in the $1290-$1300 area. Gold could close the week at its highest weekly close in 2017, just weeks after breaking its 2017 uptrend. That early July breakdown proved to be a false break as Gold has been able to rally back up to resistance. Gold has broken the downtrend line since 2011 but the most important resistance is $1300. With a break above $1300, Gold could be on its way to a retest of the 2016 high at $1375.

Turning to the miners, we find that GDX has already broken its downtrend and the 200-day moving average. GDXJ faces strong resistance at $34-$35. Silver has a little ways to go before it can break its downtrend line but its relative strength in recent days is quite encouraging.

While there are only a few data points in the junior bull analog chart (which is based on our junior indices), it suggests the juniors could be close to starting a new leg higher. If Gold is going to rise to $1375 then the juniors would enjoy a good pop. The analog chart shows the significant upside potential in juniors if Gold were to clear $1375 and advance towards $1550-$1600.

There are several reasons we have turned bullish. First, precious metals were breaking down in early July yet that reversed course entirely. Gold has rallied back to +$1290 and well above resistance at $1240-$1250. If Gold were going to break below $1200 then the rally would have rolled over again around $1240. Second, intermarket activity has turned quite favorable for Gold. The US$ index has not made a new low but Gold has perked up. Meanwhile, Gold is benefitting (as it should) from weakness in the equity market. We think the weakness could continue and drive Gold to $1375.

The bottom line is Gold is now showing strength on both a nominal and relative basis. If this continues then Gold will clear $1300 and the gold stocks (which have been lagging) could push higher in sudden and aggressive fashion. Consider learning more about our premium service including our favorite junior exploration companies.

Jordan Roy-Byrne CMT, MFTA

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Flash Update (8/10)

The 9-page flash update has been published, uploaded to the members section and emailed out to premium subscribers.

We share our latest thoughts on the sector as well as key levels in various charts. We also comment on recent intermarket developments. Finally, we note buy targets for one of our favorite companies.

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TheDailyGold Premium Update #529

The update has been published, uploaded to the members section and emailed to all premium members.

This update includes an intro report on a junior exploration company we have become very excited about due to the scope of its potential over both the next 12 months and several years.

We also cover the stock market, the US$ rebound and how that could impact precious metals moving forward.

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Flash Update (8/3)

The 6-page update has been published, emailed out to subscribers and uploaded to the members section of this website.

In this update we share our latest thoughts on the Gold, the miners, the US Dollar index as well as our mini-GDXJ index. We compare historical CoT’s of the US Dollar and Gold to see points where both were relatively bullish (at the same time). We also comment on a stock, in which we added to our position.

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