Is Gold really a safe haven right now?
The gold price has been masking the overall weakness in the precious metals sector. Major gold stock indexes ($HUI, $XAU, GDX) have been poorly under performing the metal itself. We’ve pointed out this disconnect. If you are only watching gold then you are missing the bigger picture that has been taking place over the last several weeks or so. Below is a comparison chart of 5 components related to gold in one way or another.
Precious Metals Indexes - daily comparison
There are just two trend lines you need to focus on: 1) the top blue rail and 2) the horizontal black dashed black rail. The top blue resistance rail connects the major high back in December and the most recent high in January. The bottom black dashed rail connects the most recent bottoms made and brought forward to the present. That December low was a critical low as it is a definite line in the sand. It’s support above and resistance below that line. Once broken to the downside, it reverses its role and now will act as resistance on any counter trend rally.
The HUI, a proxy for the big caps, has broken below and made a feeble attempt to backtest it from underneath but has fallen short. SLV (silver) recently broke below it’s support and has had a beautiful backtest to the underside of the black rail. Perfect from a technical perspective. The GDXJ is a proxy for the junior precious metal stocks and also had a sharp break of the black rail, a strong backtest and now it’s resistance.
Now it’s time to look at GLD and how it has masked the bearish price action in the stocks as it has held up remarkable well sitting just below the top blue rail. You will notice that, relatively speaking, GLD has outperformed the rest of the PM complex as investors have shifted out of the stocks and silver into gold itself. We believe that this has created a false sense of security if you are in gold big caps, PM juniors, or silver when you only look at the performance of gold. Study the comparison chart very carefully because if GLD breaks down from where it is right now it will be a 5 point descending triangle which is normally a bearish pattern.
We would also like to discuss the GLD - 60min chart gold chart technically.
The red circles are the same setups used to anticipate where we could look for a top. The backtest to the dotted neckline from the underneath are typically good places to take a short position or exit longs because it is a low risk and gives you a great point of reference (exit strategy). You have a line in the sand: below the neckline it’s bearish and above it’s bullish so you can set a sell stop just above the neckline in case it resistance is broken to the upside. It’s all about risk management. Once the stock or indexes start moving in the direction you want, it becomes harder to limit your risk unless you use a different kind of running sell stop. The low risk setup is always where you can find a clear cut line in the sand and this is the reason we pay much attention to the most important technical levels.
With the strong dollar in place right now the precious metals complex, and commodities in general, are facing a strong headwind going forward - at least in the near future. The action today is confirming our thesis that gold stocks are a very important indicator for gold & silver prices - along with the general direction of world stock markets.
All the best…..Rambus & Xiphos
