Gold Retest Coming
Gold and silver stocks have held up decently during the correction in precious metals, which is now in its 3rd month. However, as we mentioned last week, the bugaboo has been the relatively high net speculative position in Gold, which has not changed much despite recent weakness in the sector.
Technically Gold cracked last week and the downside momentum coupled with the relatively high net spec position argues that Gold is headed for a retest of the summer breakout.
Gold closed the week at $1463 with a net speculative position (as a percentage of open interest) of 45.9%.
As the chart below shows, the net speculative position often hit lows at or below 30% during corrections in bull years. Look for Gold to test support at $1370 to $1400 as more spec longs cut their long positions.
A retest for Gold means a retest for the gold stocks too.
Below we chart GDX and GDXJ.
GDX has a confluence of strong support at $24.50 to $25.00, which was the breakout point. GDXJ has a confluence of strong support in the $34s.
As I touched on last week, the relative strength in the silver stocks (SIL) and the strong breadth in GDX (its advance decline line made a higher high on Oct 31) has been encouraging. Time will tell if these positives remain in place should the sector retest these key support levels.
Pay attention, because the market should provide us with some good, low risk opportunities over the next few weeks. There is one junior producer we have our eyes on buying very soon.
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