#$hui

Gold has just broken its downtrend, the question is will it hold? Now that Friday has closed I created and included the latest weekly charts for gold. On this chart we can observe during the stock market rout of 2016 gold surged to breakout of its previous downtrend channel. Note how the previous resistance line turned to support and gold then resumed what appeared to be a new downtrend channel.…

Our favorite yellow metal has been the topic du jour as of late as prices of both the commodity and the miners themselves have been decimated over the past couple of months. This should not be surprising as precious metals are in the midst of a major bear market that has been going on for over 4 years. It's hard to find a worse looking asset class in the world.

So where are we? The first chart shows Gold going back to the key resistance in 2008-2009. Once we broke out above that, gold prices ripped and nearly doubled in value within a short period. Because the market has so much memory near this key $1000 level, it has been our downside target for a long time. I still think it's where we're ultimately headed:

Looking a bit more short-term, prices over the past few weeks hit our tactical downside target near $1087 which is the 161.8% Fibonacci extension of the most recent rally from the March lows. We've held nicely so far which is the market telling us that this level is relevant. Based on the bigger picture outlook we still want to be sellers, but strategic sellers. I would either be an aggressive seller of any strength back towards $1140 which was former support since the 4th quarter or get short again if and only if prices are closing below $1187. Tactically, I don't see any reason to be short now that our target has been hit and we're above $1187:

As far as the Gold Miners are concerned, the popular Gold Miners ETF $GDX is at all-time lows and we don't have data that goes back earlier than that. So we turn to the Gold Bugs Index where we have much more historical data and is similar in that it is a basket of gold mining stocks including Barrick, Goldcorp, Newmont, Agnico, etc. Notice the failed breakout in 2011 and look at the consequences of the bulls losing control. We see these 'fast moves from failed moves' over and over and over again. I think this is just a good clean example. Prices are still crashing and there is zero sign of a bottom:

But there's good news. I guess. If I had to pick one stock that looks clean for a trade and can possibly mean revert, I have to say it's Newmont Mining $NEM. Here is a daily chart showing prices hitting our downside target over the past week based on the 161.8% Fibonacci extension of the March-May rally that was also key support in the 4th quarter. This level near $17.50 is the line in the sand. I would only be long if we are above that. Below $17.50 and there is no reason to own it. Profit-wise I would be an aggressive seller near $21.50 which was former support in March:

The best part about these charts, in my opinion, is that we have some pretty well-defined levels (except for the Gold Bugs Index I suppose). We have well-defined targets and support levels in the commodity and also in Newmont. To me that's all that matters.

What are you guys thinking here?

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Gold is flirting with breaking below that $1200/ounce level again.  As the last 3 year chart below for the yellow metal shows this is an important level to be paying attention to - back in July and December 2013 it marked the bottom ahead of a good trading upswing.  

Source: BigCharts.com

So what to think?  Well putting aside conspiracy this and conspiracy that we have to start with the Fed.  The end of QE and a push up for the dollar is classically not the best backdrop for gold.  Add in no immediately obvious inflation and a good GDP print the above price action cannot be the greatest surprise.  

Still there are a number of aspects that make gold a really interesting potential investment today.  Beyond various central banks around the world - including those in China and Russia - continuing to accumulate the 'barbarous relic' (as Keynes once put it) we have gold stocks.  

I came across an interesting chart the other date showing the price to book value for gold stocks with a $1 billion plus market cap.  Thanks to various write downs over the last couple of years the grouping is not quite back to the sub book rating seen about eighteen months ago but, after the last couple of shocking performance days for the space, it is getting ever closer.  

Source: Casey Research, Capital IQ

By my reckoning three gold companies (Barrick Gold, Yamana Gold and New Gold) of a reasonable size have reported their latest quarterly thoughts over the last day or so.  Aside from all three suffering a noticeable reversal in their share price today it was a comment by Barrick Gold specifically that caught my attention.  If business - at some level - is about making profit then the continued reduction in the company's 'all in sustainable cost' (AISC) of producing gold shows even at a depressed low sentiment gold price there is some hope.  

Source: Barrick Gold Q3 presentation document.

As it happens I have never been a huge fan of Barrick Gold versus some of the other large cap peers such as Randgold for example, but even I am impressed by some of their initiatives.  

Gold Bugs index is about to break from this pattern

The Gold Bugs index remains above support that dates back 10-years. 

Over the past year and a half, the index has created a pennant pattern, a series of lower highs and high lows, teasing both the bulls and bears. As you can see, this pattern will be coming to an end soon. 

Pennant patterns are popular for suggesting that a large move is ahead, yet which direction is a different story. This pattern does fall under the continuation of trend category, anything is possible though!

After years of disappointment, bullish miner investors should be treated to some fun upside-action if the pattern breaks out to the upside.  The best plan for a pennant most often is to set back and watch for the breakout and then follow it.

If you are an active investor, it's common knowledge that Gold has taken a brutal beating in 2013. To date, Gold (GLD) is down over 28%, while the Gold Miners ETF (GDX) is down over 55%.

Another Gold Index that is getting crushed is the Gold Bugs Index (HUI). Similar to the GDX, the HUI is nearing '04, '05, and '08 lows (see chart below). A retest of this critical support looks likely in early 2014. If this occurs, we could see Gold near $1000… and, perhaps, that would signal the end of the precipitous waterfall stage in Gold prices (and related securities).

Now, even IF that were to occur, it would not/should not imply "the bottom," but perhaps a setup for tradable move higher. Remember bottoms take time to form. Note that this chart was featured in my recent article "4 Gold Charts To Watch Into 2014."  Trade safe.