Technical Weakness Continues for Gold and Metals Miners

by: Street One Financial

On July 2nd, David Chojnacki, market technician of Street One Technical Analysis, LLC (one of our affiliates) put out a note in our "S1F ETF Daily" that GLD (SPDR Gold Trust) “broke down last session below two important levels of support ($120.70 and $117.25) and is “no longer a buy at these levels.” Before the ugly trading action on July 1st, Chojnacki had previously been technically bullish in GLD and related Gold ETFs since April of 2010 (approximately the $112 range in GLD).

On July 11th, with GLD rebounding somewhat and trading around the $119 level, a note was published by Street One Technical Analysis LLC to our Seeking Alpha instablog speaking of bearish institutional options activity that we observed in XAU (Gold and Silver Miners Index) that seemed to be a play on the burgeoning technical weakness in the Gold commodity ETFs (GLD, SGOL, IAU, DGL, etc.). In the XAU, bearish combos traded (buyers of puts and sellers of calls, taking outright short positions in the index) in September options. Based on recent action in the sector, these trades appear to be well timed.

Today, Gold commodity ETFs are down nearly 2%, with GLD and related Gold ETFs are trading at their lowest lowest levels since May. Peripherally, XAU has experienced a steep selloff today as well, as has related Gold Mining ETFs, GDX (Market Vectors Gold Miners) and GDXJ (Market Vectors Junior Gold Miners). Silver and Silver Mining related ETFs, as mentioned in the instablog report from Seeking Alpha on July 11th are also weak today (SIL, SLV, SIVR).

We will continue to monitor institutional options flows in the Gold and related Mining ETF and index products for further possible signs of continued weakness, or a possible reversal to the upside.

Disclosure: No positions