The #1 question in the mailbox this week is this: What’s happening to gold? You’d think with all the talk about deficits, overspending, terrorism, the politics in Washington, among many other things, that gold prices would go up. After all, isn’t gold supposed to go up in times of uncertainty?
Well, as always, let’s look at the chart first. Here’s the 3-month chart of GDX, the unleveraged ETF that tracks the senior gold miner stocks. The lines are the same as last time we showed this chart, except for one, which we’ll get to in a moment.
What this chart shows is a clear downward bias at the moment. Higher highs and lower (closing) lows are, after all, the definition of a downtrend. And volume has been declining this week after a few big days in prior weeks.
The one line that’s been adjusted is the one running horizontally along at 21.50. This was a very-slightly-rising line, but recent gold prices show that it’s better considered as a horizontal support line. Which means it’s showing the current level of support for GDX.
In the eyes of this Gold Enthusiast, this chart is showing no signs of investor uncertainty. What it illustrates is the effects of folks jumping back into the equity markets, with stocks and the like. That indicates traders and investors didn’t get totally spooked by the recent drop in the market, and that they see continuing good times for equities in the future.
In other words, people might be a bit skittish, but they aren’t downright afraid yet.
There is an old saying that applies in times like this: The market climbs a wall of worry. When people are merely worried as opposed to downright afraid, the market has just the right amount of turbulence to allow it to slowly claw its way up. And as long as the stock market is going up, people won’t be too afraid. They’ll keep putting their money into stocks.
It’s when the last optimist puts in their last dollar/yen/euro that we need to be concerned. Last night The Donald announced he’ll meet with Kim Jong Un “before May,” which should keep North Korean uncertainty contained at least until then. So unless Europe has a sudden spat of bank failures, we can expect gold prices to be stable at least through the end of March. Sorry folks, but I just don’t see much action from our favorite yellow metal for a while here.
Signed, The Gold Enthusiast
DISCLAIMER: The author has no positions in any mentioned security. The author is long NUGT and JNUG, and may add to or sell these positions in the next 48 hours.