Has Gold's Rally Lost Its Luster?

09/05/2013 10:20 am EST

Focus: COMMODITIES

Thomas Aspray

, Professional Trader & Analyst

With gold and miners staging a comeback this summer, MoneyShow’s Tom Aspray goes prospecting for buy candidates in this sector.

Stocks rallied on better-than-expected auto sales and several of the big tech names had nice gains. The short-term technical outlook for the stock market has improved as the NYSE McClellan oscillator moved above the zero line for the first time since July. This allows for more gains over the near term but there are still no strong signs that the correction is over.

Gold was hit with the heaviest selling in some time as December Comex gold lost $22 while the SPDR Gold Trust (GLD) closed 1.2% lower. The precious metals have been strong since the stock market topped in early August as GLD is up well over 8%. 

Of course, both the stock market and the precious metals are waiting for Friday’s monthly jobs report and a better-than-expected number could pressure the metals.

Many are wondering if the rally from the July lows have been strong enough to change the major trend and whether they should be buying gold or the gold miners now?

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Chart Analysis: The weekly chart of the SPDR Gold Trust (GLD) shows the eight-week rally to last week’s high at $137.55 as a doji was formed.

  • Therefore, a close below last week’s low at $134.15 would trigger an LCD sell signal. It would stay in force until the doji high at $137.55 is overcome.

  • The long-term chart shows that the major 38.2% Fibonacci retracement resistance is at $141.87.

  • A weekly close above this level would make the 50% resistance at $150.26 the next upside target.

  • The long-term downtrend, line a, is now at $164.40

  • The weekly OBV has been above its declining WMA for the past three weeks.

  • The OBV did test the long-term support from 2010-2011, line c, at the June lows.

  • The OBV did make new lows with prices in June.

  • There is monthly pivot support now at $131.91 with the quarterly pivot at $129.89.

  • The major support is at the early August low of $123.55.

The daily chart of GLD shows that the minor 38.2% retracement support, calculated from the 2012 high at $174.07, at $137.39 was just exceeded last week.

  • GLD has, so far, failed to close above this level.

  • If the rally from the August lows equals the rally from the June low to the July high, the 100% target is at $139.01 (red line).

  • This also corresponds nicely to the upper boundary, line d, of the trading channel.

  • Despite the impressive rally, the daily OBV has just tested but not exceeded the long-term downtrend, line f, that goes back to the 2012 highs.

  • The daily OBV, like the weekly, is also above its WMA.

  • The daily OBV did make new lows with prices, which is not consistent with an important low.

  • There is daily support now at $131.39-$131.51 and a close below this level would complete a short-term top.

NEXT PAGE: What It Means

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The Market Vectors Gold Miners (GDX) closed last week on its lows as the rally appears to have stalled at $31.30.

  • GDX is already down 8.7% from its high and has reached its short-term 38.2% support and the quarterly pivot.

  • GDX is slightly below its flat 20-week EMA at $29.11.

  • The minor 38.2% retracement resistance, calculated from the 2012 high of $55.25, is at $34.70.

  • The weekly OBV did make new lows in June but has moved well above its long-term downtrend, line b.

  • The OBV is also well above its now flat WMA and the daily OBV (not shown) has held above its WMA on the drop.

  • There is further support in the $26.50-$27 area.

  • The monthly projected pivot low is at $24.23 with chart support at $23.89.

The Market Vectors Junior Gold Miners (GDXJ) spiked to a high of $54.86 last week and tested the downtrend, line b, but then closed well off the highs.

  • The longer-term downtrend is at $83.86 with the major 38.2% resistance at $88.50.

  • The weekly OBV is still well below its long-term downtrend, line e, but has moved above its declining WMA.

  • The weekly OBV did make new lows in June, line f.

  • The daily OBV (not shown) has dropped below its WMA and has broken its uptrend.

  • There is next good support at $44.93, which is the quarterly pivot and also corresponds to the July high.

  • There is further support in the $41-$42 area.

What It Means: There is clearly a mixed technical outlook for these three ETFs.

The rally in the SPDR Gold Trust (GLD) has been impressive in terms of price but not in terms of my volume analysis. A move above the downtrends in the daily and weekly OBV would be a sign of accumulation. Though we may not see a drop below the June lows, the $123.55-$126 area could be tested.

The Market Vectors Gold Miners (GDX) looks the best technically, as while the OBV did confirm the lows, it now appears to have bottomed. The flattening out of the WMA on the OBV is a good sign. The key support is at $23.89 and stops need to be under this level at this time. I may adjust the buy levels in the next week or so.

The 29% gain in the Market Vectors Junior Gold Miners (GDXJ) in the last month has been impressive but also makes it vulnerable to profit taking and you should protect profits if you have them.

How to Profit: For the Market Vectors Gold Miners (GDX), go 50% long at $26.74 and 50% long at $25.22, with a stop at $23.77 (risk of approx. 8.5%).

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