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Negative Divergence in Gold Stocks Bodes for Lower Prices

Commodities / Gold and Silver Stocks 2016 Oct 29, 2016 - 04:02 AM GMT

By: Jordan_Roy_Byrne

Commodities

You have heard it before from us and probably elsewhere. The miners lead Gold. We have seen this every major turn dating back 16 years and it can also be the case with respect to short and medium term trends. While the precious metals sector has rallied over the past few weeks, the rally has been weak and the gold stocks relative weakness in recent days bodes negatively for the sector.


Consider the daily chart (below) and the overall performance from this past week. Gold gained $9/oz or 0.7% on the week but GDX and GDXJ lost 3.3% and 5.3% on the week. Silver gained 1.7% on the week while SIL lost 4%. More importantly, the gold stocks peaked seven sessions ago and are trading 4%-5% below that peak while Gold closed Friday at its highest level in October. This is not the type of action typical of a sustainable rebound. 

As a result, we are looking for the gold stocks to trade lower and make an important low in the days or weeks to come. Two weeks ago we wrote of a confluence of downside support at GDX $22 and GDXJ $34-$35.  The weekly candle charts below show very strong horizontal support targets a tad lower at GDX $21 and GDXJ $33. Roughly speaking, this indicates  potentially 10% downside in GDX and 15% downside in GDXJ.

Unless the gold stocks are suddenly able to rally above the highs from seven sessions ago, they figure to retest recent corrective lows and perhaps make new lows. However, lower prices should lead to an excellent buying opportunity. This correction could end up like the 2002 correction in terms of price and the 2001 correction in terms of time. We are currently hedged and will redeploy that cash when the buying opportunity comes.

For professional guidance in riding the uptrend in Gold, consider learning more about our premium service including our favorite junior miners which we expect to outperform in the second half of 2016.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2014 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.

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