We started the week talking about gold. So, we might as well end the week doing the same thing.
The recent breakdown in the gold sector has crushed the spirits of most gold bugs.
Admittedly, I was expecting a positive reaction in the gold sector following last week’s Federal Open Market Committee (FOMC) meeting. The seasonal patterns were strong for gold. Gold stocks were trading well (opening lower and closing higher). Energy was building for a big move.
The commercial trader net-short interest in gold contracts was at a level that often precedes a rally in the metal. And the prices for both copper and silver were running higher. So, I was getting excited for an upside breakout in gold and gold stocks.
But after more than 30 years of trading gold and gold stocks, I know that even when all of the elements line up near perfectly for a strong move higher, gold stocks don’t behave like most other stocks. They’re far more prone to disappoint traders.
So, while I have recommended a few trades in the gold sector to my Delta Report readers – and those trades are currently underwater – I haven’t suggested taking aggressive positions. Though we’re now reaching the point where I’m about to.
Price action isn’t quite positive enough yet – though it’s certainly looking better today after gold sold off in early trading yesterday and has been trying to recover ever since. And investor sentiment towards the gold sector is just about as depressed as I’ve ever seen it before.
The recent breakdown has absolutely crushed the spirits of even the most die-hard gold bulls. I know this because my email is filled with negative comments on gold.
They’re not angry comments. Nobody is ticked off about the recent action. But everybody is depressed.
Everybody is dismayed that gold stocks couldn’t rally off of the most ideal setup of the past year. The VanEck Vectors Gold Miners Fund (GDX) closed yesterday just 37 cents below where it was following the FOMC announcement last week. But folks are enormously disappointed in the action.
In fact, I’d go so far as to say the commentary is more negative than when I’ve had other positions fall 10%, 20%, 30% or even more against me. The 2% drop in the gold sector isn’t nearly as bad financially. But it’s taking an enormous emotional toll on folks who were hoping for a gold stock rally.
That tells me that gold stock traders are bailing on their trades. They can’t take the disappointment anymore. So they’re selling their stocks and moving on.
That also tells me we are close – very close – to an important intermediate-term bottom for the gold sector.
I can’t say for sure when the gold sector will bottom. But I get the feeling we’re close to it.
Best regards and good trading,
In today’s mailbag, further thoughts on gold from a Delta Report subscriber…
Hi Jeff. I have taken your recommended gold trades but I have done so with an underlying concern. I believe gold is hinging on interest rates. As interest rates begin to rise, gold will sink. I suspect seasonal tendencies will not go the usual direction. What will move gold is war and that is not out of the question. Israel, the U.S., and Arabia are targeting Iran. Until then, gold will remain weak, but a safe haven.
How have you traded gold in this environment? Send in your stories, questions, and suggestions right here.