What put it on my radar: VanEck Vectors Gold Miners (GDX) is back up over its 200-period moving average. It’s been forming a descending triangle since January 2017. Eighty percent of the time, when you see a descending triangle, you’re looking for a bearish breakdown, but I’m expecting a bullish breakout here.
Why: Physical gold (SPDR Gold Shares, GLD) is over its 50- and 200-day averages and has been very strong the last two weeks. There was also a strong move in silver (iShares Silver Trust, SLV); SLV is right at the 50-period moving average.
On Thursday, we had a red piercing candle in both gold and silver, leading on Friday to what could be a bearish harami (a trend indicated by a large candlestick followed by a smaller candlestick that’s within the range of the first candle’s body). I want confirmation before I act.
How I’m playing it: I’m still clinging to the bullish side, based on the whole market. I’m looking for a continued move over Thursday’s red candle; if GLD goes over $120.69 and SLV over $15.90, and the GDX moves over $23.06, I will take a position in the GDX and some individual mining stocks. We’re within pennies of those types of moves.
Why I’m bullish on gold: There’s more behind-the-scenes strength coming into the GDX and the miners in general than we’re seeing in individual positions. I use Royal Gold Inc. (RGLD) as an indicator. It’s already testing its 2016 highs, and working its way toward highs not seen since 2012. I can’t see it continuing toward all-time highs if the gold market is going to fall apart, so I think gold bears are thinking wishfully.
Petra Hess runs PetraPicks.com. She is a technical swing trader and long-term investor in domestic and Canadian stocks and ETFs. At the time this article was published on RagingBull.com, she did not have any open positions in gold, silver or any mining stocks, but she was considering taking a position in GDX as described in this commentary; she does not trade options. Petra was last long in GDX June 21.