Gold may be nearing a buy point again

September 28, 20204 Comments

As a contrarian, I rely at least to some extent on sentiment data. As the Templeton once said:

“To buy when others are despondently selling and to sell when others are avidly buying requires the greatest of fortitude and pays the ultimate greatest reward.”

Today I’d like to look at the sentiment profile of gold, and the gold producers. Then, lets look at their charts.

 

Gold

Here’s the gold optix for the gold commodity ETF “GLD” by sentimentrader.com. This indicator is comprised of:

  • Trading activity in put options versus call options
  • Future volatility expectations
  • Average discount of the fund to its NAV
  • Price behavior

You’ll note that gold is quite out of favor right now. Take a look at what happens when the optix moves below its “buy” trigger zone at 20. Its typically rebounded when investors and speculators are bearish on the commodity.

Now lets look at the gold chart. neartermed support on the daily chart at $1900 was cracked recently. Next level is $1825. The momentum studies I watch are getting oversold, and haven’t hooked up yet. But they are close. Combined with the pessimism seen in the sentiment optix, its my opinion that we’ll see a turnaround pretty soon. That might provide a new entry point. Keep a sharp eye on support at $1825 and/ or a momentum hook. As seen on the equityclock chart below, gold can experience a seasonal flat period in the late part of the year, but it often sees strength in the new year. So there’s time to get on this bus.

Gold producers

GDX is the gold producers ETF traded in the USA. Like the bullion, GDX is in the sentiment “buy” zone, meaning that its out of favor…..a contrarian signal. Again, note how this ETF tends to rally when the indicator moves below 20 – which is where it is now.

The bearish break of support on GDX at $39 on the neartermed (daily) chart was short lived. Its holding support so far. Adding to the positive is a hook on stochastics and RSI. MACD is a longer termed indicator, and it hasn’t hooked up yet. Given the gold bullion chart and gold seasonal trends, traders who wish to buy gold producers on the shorter termed momentum signals might want to consider legging in, rather than going in with a full position. The chart looks decent, but I’d like to see MACD move up before fully committing.

Conclusion

At ValueTrend, we held about 6% gold through the summer. We’d consider adding to that position given the above parameters (bullion holding $1825, a hook on MACD on the producers chart). Its likely the coming days or weeks will offer some opportunities to take advantage of that trade.

4 Comments

  • Hi Keith,

    Can you comment on the recent fine JP Morgan has agreed to pay for precious metal manipulation along with the fines other banks paid such as Bank of Nova Scotia. Do you see these fines affecting the price of gold for the positive or are these institutions that are engaging in these spoofing practices making so much money that these fines are just a slap on the wrist.

    Thanks

    Reply
    • Hi Vlado–I probably cant offer you too much insight here, being the chart follower that I am. Ultimately, the idea of technical analysis is that the market discounts all that is known, including a consensus on future performance of a security or asset. So, if we follow the trend, it will show us the significance of these events.
      In other words…I have no idea!

      Reply

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