- Gold miners rallied Friday despite gold’s drop, hinting at a turnaround.
- This comes as gold struggles below key support, keeping downside risks in play.
- However, GDX’s bounce suggests gold ETFs may finally catch up.
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Gold has bounced back after falling on Friday, which ensured of a red close on the week. Interestingly, several gold miners rallied on Friday, potentially suggesting that gold miners are finally ready to play some catch-up with the precious metal.
For the metal itself, it is going to be an interesting week, with the focus remaining on Ukraine and tariffs, while the ECB is going to deliver an interest rate decision, and we will have plenty of US macro pointers including the monthly jobs report on Friday to look forward to.
Gold Rebounds After Easing From Severely Overbought Levels
Friday’s big recovery in US stock markets saw gold head lower as the appetite for haven assets dropped. The precious metal also ended lower for the week, with a loss of 2.65%. That was the metal’s first weekly drop after eight consecutive weekly gains, as the metal retreated from severely overbought levels.
While gold has started this week on the front foot, it remains to be seen whether the precious metal will hold onto its gains or resume lower in light of last week’s bearish signal. As I have repeatedly mentioned in recent weeks, gold needed a bit of correction to work off its severely overbought conditions, even if I continue to expect the metal to eventually rise above the $3K hurdle.
The longer-term charts of gold still need to work off their overbought conditions either through consolidation or a price drop, although on the daily time frame the metal is no longer overbought with the daily RSI sitting at around 50 to 55. But the fact that gold broke and held below prior support in the $2877-$2900 region was a potentially bearish technical scenario. Unless it now quickly reclaims this broken area, I can’t rule out the possibility of gold dropping to test the next key support coming in around $2790, and if the selling continues, even $2710-25 area.
As a long-term gold bull, I would welcome a bit more of the selling as it will allow long-term overbought conditions to be worked off, while also providing a real dip for late-buyers to take advantage of.
Meanwhile, there was some interesting price action for gold miners and gold ETFs on Friday. Despite gold falling, gold miners rallied, potentially a sign of a turnaround in the sector after consistently underperforming the underlying metal prices.
Newmont Provides Bullish Signal
Newmont (NYSE:NEM) is an American gold mining company and the world's largest one at that. Like most other gold mines, NEM has not followed gold prices higher, frustrating those expecting to see big gains as the underlying precious metal surged to record levels. But at the back end of last week, we saw some bullish price action, as NEW rallied after a gap down. It held key support in the 41.20-42.25 range and printed a bullish-looking candle on the daily time frame. Is this the start of a recovery here?
GDX Could Play Catch Up with Gold
The VanEck Gold Miners ETF (NYSE:GDX) is among the most popular gold ETFs out there. The fund normally invests at least 80% of its total assets in common stocks and depositary receipts of companies in the industry. Frustratingly for investors looking for exposure in gold via this and many other ETFs, they haven’t yet enjoyed the sort of returns they would have expected given how strong gold has rallied in the last few years, repeatedly hitting record levels. GDX’s 2011 high of $66.98 remains miles away from where it is trading right now. In fact, GDX hasn’t even been able to take out its 2020 high of $45.78 yet, with the ETF printing a high last year of $44.22 in October.
But the trend is clearly bullish with GDX holding above the 200-day average and making higher lows. On Friday, it bounced right at key support between $38.00 to $39.00 area (shaded zone on the chart). Here, it started the day with a gap down, before rallying into the close. The resulting price action was quite bullish and it may be a sign that GDX is finally going to catch up with gold prices.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.