Don't take a shining to gold

The bulls may still be winning, but some are now watching one out-of-favor market for bargains, and it looks like a bad idea technically.

By MoneyShow.com May 10, 2013 1:26PM

 Gold Bars copyright Stockbyte, SuperStockBy Tom Aspray, MoneyShow.com


The Spyder Trust (SPY), as well as the Dow Jones Industrial Average ($INDU), broke their five-day winning streak on Thursday and the Dow is a bit lower early Friday. No real U.S. economic data Friday for the market to react to but Asian markets were strong on the back of the higher dollar and weaker yen.


A further correction in the stock market is possible at any time, but it would take a weekly close below the prior week's lows to signal a more significant market turn. 


However, there is one market that has rebounded sharply over the past few weeks, tempting some to buy. A look at the technical studies suggests that it is ready for another wave of selling.


chart
Click to Enlarge


Chart Analysis: The weekly chart of the Spyder Gold Trust (GLD) shows that a LCD sell signal (see MoneyShow) was triggered the week ending Oct. 12, when it closed at $170.06.

  • The uptrend in the weekly OBV, line b, was broken in December as the volume spiked. 
  • As the selling picked up in April, Fibonacci support as it hit a low of $130.50. 
  • The major 50% support from the 2008 lows is at $126. 
  • GLD has rebounded over the past three weeks to fill the gap as it hit a high of $143.43.
  • There is much stronger resistance now in the $148-$150 area. 
  • The OBV rallied back to its declining WMA (see arrow) in early February and shows a clear pattern of lower lows. 
  • The on-balance volume (OBV) has major resistance at its WMA and the downtrend, line a.

The daily chart more clearly shows the recent rebound and the sideways pattern that has formed over the past 11 days. Gold futures are lower in early trading so this range will likely be broken Friday.

  • It is a negative sign that prices have just been testing the flattening 20-day EMA but have not been able to decisively close below it. 
  • The daily chart shows that there is another gap in the $148.85 (line d) to the $150.65 area. 
  • The daily downtrend, line c, is now in the $154 area. 
  • The daily OBV has just rallied back to its long-term downtrend, line e, which is also negative andThe Most Oversold Gold Miners, I took a look at the oversold status of gold mining stocks as several had closed below their starc-band.
  • The technical outlook then suggested that while some analysts were turning bullish, oversold rallies were expected to fail.

chart
Click to Enlarge


Many have rallied 20% from the lows, and the weekly chart of the Market Vectors Gold Miners ETF (GDX) shows that it has just been moving sideways for the past four weeks.

  • Everyone who bought since early 2010 was holding a losing position after the support at $38.80 (line a) was broken in February. 
  • GDX has not yet filled its gap from April. 
  • A drop back below the daily support at $28 will reaffirm the downtrend. 
  • The monthly pivot is now at $31.84 and the failure of GDX to move above it on the recent rally is a sign of weakness.

The chart of the Market Vectors Junior Gold Miners ETF (GDXJ) looks even weaker as it has formed a clear pattern of lower lows, line d.

  • GDXJ is already close to its recent lows at $11.28 and the daily OBV (not shown) has been back below its WMA since early May. 
  • The monthly pivot is at $13.61 with stronger resistance now in the $15.50-$16 area. 
  • The long-term downtrend is in the $17.80 area. 

What it Means: Gold and the gold miners were weak enough before the U.S. dollar started to gain strength. It will take much more time from a technical perspective before a sustainable bottom can be formed in gold or the miners. Typically, gold does form a seasonal low in late July.


How to Profit: No new recommendation.


Portfolio Correction: Thursday's portfolio page did not reflect that our long position in Murphy Oil Corp. (MUR) was stopped out at $59.19.

3Comments
May 11, 2013 7:39PM
avatar
Don't follow the herd or you'll go over the cliff. The whole concept of investing is buy a low price relative to intrinsic value and sell at high price relative to intrinsic value. If it costs $500-1000 to produce an ounce of gold then like everything else it would seem to be worth $1000-2000 ounce. So buy one ounce at $1500 and if it goes to $1000 buy two more ounces for an average of $1,166 per ounce.  Wait for it to go back to $1200 or more and sell for a profit.
May 12, 2013 2:15PM
avatar

GLD...The paper ETF shares are backed by Gold so to speak, But as I recall "only" 10% of the Value.

Is kept in possession at anyone time.That being said, how safe is your investment in a 100% cashout?

 

Is it another Scheme, only to be held by a select few, whereas 75-90% are left holding the Bag.?

But I guess the availability for all investments to be cashed out hold, the same perils..??

And as far as my concern, bullion and coin in many ways have "way too many" fees, commissions, storage, transport and other problems for "the little guy" to do well in that arena.

So bottomline: Investing in comfortability, may be as wise as appreciatability also..

I guess we should strive for BOTH..?

Emptor Caveat..The Investing vechicles and buyer/sellers for Gold that have surfaced in recent years.

May 11, 2013 12:44AM
avatar

And guess what???

 

People are STILL buying gold, silver, and platinum in a physical form...

 

GLD is paper and NOT backed by physical gold, so I bet it's in a bubble.

 

Gold will always be worth something, but government currency eventually becomes worthless.

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