Back in March in my major gold update I warned you that what was being billed as a New Bull Run could easily turn out to be a complex correction. In that post’s chart, I didn’t put the small Fibonacci retracement level at 38.2% as I was impressed with the strong move to the upside from the bottom and I thought it would be useless. These days the situation has changed and I put an updated chart below.
Chart 1. Gold Monthly: First Serious Resistance
Chart courtesy of tradingview.com
Last month the gold stalled at the red trendline resistance as the price closed 25 dollars below the month’s maximum. This month the price action will be crucial as there is no room to step back. It would be hard work to crack double resistance within the $1360-1381 range, which consists of the red trendline and the 38.2% Fibonacci retracement level.
August can start one of the following three scenarios. The first scenario will be triggered if gold fails to advance further to the upside. It can be a heartbreaking situation for the gold bugs as the setback could hit the sub-$1000 area.
The second scenario means the consolidation before a new bull attack. The price could get stuck within a wide $1100-1400 range checking the strength of both bulls and bears. It’s the least interesting outcome for either party.
The last scenario implies the breakout towards higher levels between the $1380 and $1590 marks where the next Fibonacci retracement levels are set.
Chart 2. Top Gold Stocks Comparison: Gold Rush Indeed!
Chart courtesy of tradingview.com
In the first part above, I shared my excitement about the further behavior of the gold price as we reached a crucial milestone on the chart. One of the possible outcomes leads to the drop in gold price and it can hurt the gold stocks accordingly. And the main reason for this part is to identify which stocks are the most vulnerable.
The above chart has a high resolution and to see it in a full size. (please click on the chart) It shows us a comparative dynamics of gold and the top gold stocks by market cap.
The 5 gold stocks are:
1. Barrick Gold Corporation (NYSE:ABX) (blue),
2. Newmont Mining Corporation (NYSE:NEM) (orange)
3. Goldcorp Inc. (NYSE:GG) (red)
4. Agnico Eagle Mines Limited (NYSE:AEM) (purple)
5. Randgold Resources Limited (NASDAQ:GOLD) (green)
I took the bottom in gold at $1046 mark on the 3rd of December 2015 as a starting point for the comparison to trace the effect of gold's strength to the stocks price action.
The ultimate finding of this chart looks obvious – gold showed a laughable progress compared to the stocks rocketing. The next discovery is linked to emotions as the stocks were under pressure till the mid of January with the lag of more than a month behind the rising metal. While stock investors were dealing with the fear, the gold bulls were pushing the metal higher.
The best performing stock is Barrick Gold Corporation, the largest by market cap, which brought almost 200% to the buyer. The weakest performing stock is Goldcorp Inc., which made almost a 50% gain, which is a double to what could have brought you the long gold position. The commodities traders could think of the shift to stock trading after looking at this chart above showing the amazing dynamics of the top gold stocks.
I added the synthetic symbol on the chart (chocolate color), which reflects the average price of the 5 stocks to show you which stocks are above and below the average at +104%. Three stocks (ABX, NEM, AEM) performed better than average, and two stocks underperformed it (GOLD, GG).
I think that sudden drop in the gold price could badly hurt the most inflated stocks – the ABX with a bubbled 165% premium to gold dynamics and NEM with more than a 100% premium. Of course, there will be no winners from gold weakness, but we should name the most vulnerable to be prepared. During the first Pendulum experiment we have already witnessed how quickly the winner and the loser can flip their sides and that is why it shouldn’t be a surprise that the best performing stocks could be the biggest losers at the end of the day.
Intelligent trades!
Aibek Burabayev
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
Excellent article! Thank you! Carol
I would add put $TNX 10 year note on the radar and check it every
day to gauge the strength or weakness in the economy. Interest
rates popped up on the jobs report but has been trending back
down the past few days on weak economic reports.
it feels to me that a lot of people have "decided" that gold is in a new bull market
...it feels to me that a lot of people have "decided"...
So your thinking that people are making a gut decision is based on feelings? 😛
I am thinking what Carl is thinking. The gold market is manipulated. Only two scenarios are good for Gold bugs. 1) Manipulators want gold to go higher. 2) Manipulators lose control.
Historically we're close to a strong price period for gold. I read a stat that entering long positions on or about August 26 and holding until October 1 has worked 23 times in the last 41 years - a success rate of 56.1% (source: Almanac Trader). For me I think gold's in a larger bear market and will claw it's way back up to US$1400 before trading sideways for a time, so i'm leaning towards Aibek's second scenario for the mid term and definitely not the last. A date to watch is the G20 Leader's Summit on September 4 in Hangzhou, China and the impact their decisions have on the dollar (i'm talking currency wars).
Martin, I think this is along the lines of what you are talking about...great article:
http://www.321gold.com/editorials/hamilton/hamilton080516.html
Gold is go，not gone，which means it would be back， continue to buy （stocks）would make you rich some day.
somebodys breaking the law by counterfiting money !! hillary not the only crook !! cant tell us why ? too hard to understand ? try us public is dumb in general but we can do a little math !! nobody talks about US debt ?????????????? BOB
im reading gold may fall back to 1200 !! who knows ? then take off big from there ! hopefully last correction !!!!!!!!!!! BOB
Gold I believe will blossom to end of the year. Watch GG which will rise faster than it show.
I've been really concerned over the past 5 months about the rise in the price of gold. I never felt we saw real capitulation in December 2015 or January this year. I don't read magazines, but I would love to have seen the front page of Time picturing a bar of gold in a trash can. I would feel a lot more confident about the rise in the price.
I kept buying gold and the miners nonetheless, but keep, prominently, in my mind, the possibility of sub $1000/oz gold. Few people now expect this, and everyone seems to agree that this is the beginning of a new bull market, which I think, should give us pause. Thanks for the article.
Carl, I agree...and yet the sentiment of ' the market' has to be taken into account. All of that 'bogusness' is valid, yet the machinery is following it as if it were the Gospel. Gold is going to prevail in the long run but IS extremely vulnerable until investors catch on to the true nature of this economic situation. A rigged game lasts only so long...
My view is that T/A is meaningless in the totally manipulated PM market. I don't understand how one can chart the pre-programmed algo sell off of unbacked GLD/SLV paper initiated by an arbitrarily bogus job number released by the Bureau of Lies and Scams or additionally the arbitrary jawboning by the fed of a rate increase.