Gold vs. GDXJ: A Catch Up?

05/05/2017 2:46 am EST

Focus: COMMODITIES

Omar Ayales

Editor, Gold Charts R Us

Gold's B decline has begun. Silver, gold shares and platinum led the way by declining first and steeper than gold, explains Omar Ayales, editor Gold ChartsRUs Weekly Trading Service.

Interestingly, gold did not rise on dollar weakness. Instead, it edged lower. And although gold remains above a key ‘A’ rise support level, ST weakness is evident and should be analyzed.

B declines in a bull market tend to be mild just like the A rise on the upside.  Our Chart of the Week below  shows what is likely on the downside.

chart 1

Gold could easily decline to the $1210-$1200 level which would be a moderate 6%-7% decline (a 50% retracement from the ‘A’ rise).

But in a worst case we could possibly see the B-D uptrend near the $1160-$1170 level tested, and the bull market would still be underway.

Notice gold’s indicator on the chart. It’s been holding at a high area for most of 2017. It’s now starting to decline, thereby telling us the ‘B’ decline is heating up.

Our strategy is to maintain exposure to gold but have enough cash to buy more gold and gold shares on weakness.

It looks like gold could "catch up" to gold shares and decline while gold shares consolidate.

Gold shares peaked in early April when problem at Market Vectors Junior Gold Miners ETF (GDXJ) surfaced as you can see on the chart below. This problem is largely due to a high interest in junior mining companies.

charrt 2

The NYSE ARCA Gold Bugs Index (HUI) gained 59% in 2016 and this year's volatility is the basing and filling of a major LT bottom pattern, as you can see on the Chart to the left.

Note how the last three falls in gold shares were more dramatic than gold's decline. And it looks like it could happen once again.

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