After Friday's action, I penned an article identifying several warning signs for gold bulls. If you missed the article, click here. It turns out that the article was quite timely as April gold hit $1280 resistance right after it opened Sunday night in the Globex, closed at $1263.50 in New York trading, and then fell as low as $1252 late Monday, before recovering to the mid $1250s. GDXJ underperformed GDX today again, closing down 5.24% vs. 3.30% in GDX. Platinum closed down $7.50, while gold only closed down 90 cents, so there was more profit-taking in the Long Platinum/Short Gold trade.
Today, Americanbulls.com went long the triple leveraged bearish mining ETF (NYSEARCA:DUST) (click here) and took profits on GDX and the triple leveraged bullish mining ETF (NYSEARCA:NUGT). The last three times they liquidated their long GDX and NUGT positions they went short, so today's decision to just sell and go into cash is a small victory for the bulls. It shows something has indeed changed. All is not lost.
The Current Cloud Over Gold May Have A Silver Lining
We have now recovered just a couple dollars shy of $100 off the recent lows. With today's reversal from a rejection of $1280, we should form a low very soon, and then move to $1300 in gold and likely $1340 or higher. Thus, today's profit-taking, is a much needed rest and consolidation. Jim Wykoff at Kitco, click here, is saying that gold has established upside bullish momentum to suggest a market low is in, and still rates gold a 4.0 out of 10.0, which is almost back to a neutral 5.0. Guy Adami even called ABX a buy for his Fast Money first trade for Tuesday (tomorrow), click here. Just on the basis of Guy Adami's call, I would expect ABX to trade higher on Tuesday, supporting GDX. And despite the fact americanbulls.com is out of GDX & NUGT, and now long DUST, the last 3 times they bought DUST the trades were losers, and this one could be too.
I Am Using The Current Weakness To Position For A Big Move Higher
What I am trying to say is that, one should not lose sight of the fact that the next big move in gold is most likely to the upside and not the downside, and any weakness from the $1250s down to $1230 in April gold, should be used to position oneself for the long side and not get too concerned about making a lot of money on the DUST trade. Taking some protection to get through this potential rough patch, by owning some DUST shares, buying put options, or selling in the money calls, is prudent, especially this week with the FOMC Announcement on Wednesday. However, the plan is to get positioned for higher prices, as the trend is transitioning from bearish to bullish for gold and the miners.
Gold got a lot of safe haven buying support when emerging markets sold off last week and the Dow stocks tanked. Expect more safe haven buying in gold in the immediate future as the emerging markets should take at least a month to make a meaningful bottom. Also the stock market should see a lot more dips before bottoming as well. A dip should in fact occur in the morning with tech bell-weather Apple guidance being poor, following earnings this evening. The stock sold off and should depress stock prices across the board on Tuesday, which also could offer some support to the miners. The gold metal ETF (NYSEARCA:GLD) ended #40 on the list of Buying On Weakness Stocks today, click here, so smart money was using today's weakness to get positioned for higher prices. I would recommend doing the same.
If you missed technician Gary Wagner's video on Kitco today, click here. Mr. Wagner is extremely bullish gold right now, and he tends to be somewhat conservative and is not a perpetual gold bull like Dr. Marc Faber. I give some weight to his bullish projections.
The thoughts and opinions in this article, along with all stock talk posts made by Robert Edwards, are my own. I am merely giving my interpretation of market moves as I see them. I am sharing what I am doing in my own trading. Sometimes I am correct, while other times I am wrong. They are not trading recommendations, but just another opinion that one may consider as one does their own due diligence.
Disclosure: I am long NUGT.
Additional disclosure: Also long some DUST shares.