The long suffering (and diminishing) army of gold bugs, distraught over gold’s underperformance in the wake of asset inflation, government spending, and historically low (sometimes negative) interest rates over the last seven years, received a resounding message of hope yesterday when gold broke through long term resistance to top tick at 1397.70. Silver also broke through near term resistance of $15.15, and this morning gold miners also jumped higher and confirmed the breakout and retest of the long term down trend line from the 2011 highs. It all seems to be working at the moment for the precious metals sector. Let’s look at the charts.
The 15.15 level has acted as support and resistance since mid-2017, and silver convincingly broke through that level in overnight trading, continuing it’s breakout from the wedge pattern it has been forming since the beginning of the year. With the 200 day moving average finally turning up, and RSI confirming, the move looks real, and the next key level is 16.20.
Palladium has surprised to the upside. After breaking down from its long term trend line in May, the 61.8% Fibonacci retracement held, reversed, and retested in overnight trading. More importantly, price eclipsed the $1460 level, which had acted as support and resistance. Palladium needs to hold above this level, and more significantly, close back above that trend line to confirm that the bullish move has more length. If palladium succeeds in doing so, a test and breakout of all-time highs seems likely.
For the entire metals complex to move higher, we need the miners to show strength, and to the satisfaction of gold bugs, the charts of gold mining ETFs GDX and GDXJ have been textbook cases of breakout, retest, and launch. In the case of GDX, the down trend line, converging with the up trend line, converging with the 200 day moving average, which served as a launching point for this most recent bounce – is precisely how price needed to act for bulls.
The chart of GDXJ is similar . . .
A junior mining and exploration stock I follow is Equinox Gold. The chart below shows a nice breakout this morning from an 18-month base.
However, Pan American Silver and Freeport-McMoran and both have some work to do. In the case of Pan American specifically, the stock has some work to do to get above the key $14 level. Bulls want to see price push through the 200 day moving average and down trend line. I would look to get long on a break of horizontal resistance at $14.
Freeport-McMoran has been tap dancing along the 23.6% Fibonacci retracement level since late 2018. The stock is knocking on the door again here right at 200 day moving average. Bulls want to see a strong push through this level to target a retest of the 38.2% Fib level at $17.
The next month will determine much about whether the rate cuts that the market has now priced in – with some speculating about the possibility of a 50bps cut in July – will come to fruition, and whether the zeitgeist of modern monetary theory will propel markets higher. In that macro environment, it would stand to reason that metals should benefit and offer significant upside.