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Expecting The Current Gold Rally In The Metal & Miners (GDX, GDXJ, NUGT, JNUG) To Be Sustained

I have said for months that I wanted to be long gold, beginning July 5, 2014. It appears the bullish turn has come a bit early. The chart technicals have turned quite bullish and portend a move to the $1341 area, as projected by Gary Wagner in this Kitco video interview, click here. I was pleased to see Gary mention the move out of the recent $1240 bottom to $1285 in August gold, projected a 61.8 Fibonacci buy at $1257. I caught that in real time and it appears Gary did too. Amazing how we tend to sing from the same sheet of music! On Tuesday, June 17th, August gold futures fell to a few ticks above that level and then rallied quickly over $15 off the low. I believe the move occurred on a weak CPI number, if I remember correctly. The moment I saw that, I told myself, we might have just seen a major bottom. Well folks, we did! Then Wednesday there was hardly any selloff on the FOMC taper announcement, as gold merely retraced back to the overnight lows of $1267, and rallied to the high $1270s. I was looking for the post earnings announcement rally, but miscalculated the shallowness and brevity of the initial selloff. This was buy confirmation #2. Well, overnight, when gold took out resistance above $1286 as mentioned in the Wagner video (I bought 1279 area and added $1285.50), and we got confirmation of a major bottom #3. I was still believing $1300 would hold back the market, at least initially, and got out just below that resistance level. Then came bottom confirmation #4, the quick move above $1310. I was driving but should have had a stop in at $1302 or $1303 to get long again, but had to buy at $1313.

At the conclusion of the FOMC meeting on Wednesday, I mentioned the prudent ratio of NUGT to DUST if one plays the leveraged ETFs in the big miners or the ratio of JNUG to JDST if one plays the Juniors, was 60/40, meaning one should be net long 20%. It is not so bad being long just 20% if one figures that being triple leveraged, one has 60% of their funds invested on the long side. Even with the rally to $1322 on Thursday, I still hold that a trader should favor the long side. As time goes on, the higher prices in the bullish ETFs compared to the bearish ETFs one is holding, will also make them move more and help capture additional gains. There is plenty of time to worry about the bearish ETF side of the trade later.

One of the Najarian twins was just on CNBC and mentioned the short squeeze that occurred and how he got out yesterday. I believe he got out too soon, as the current upmove should be sustained for about a week, if history is a guide. With the trade heavily short gold and the miners, the buying back of the short positions, along with the speculative longs, propelled gold to an outstanding gain yesterday of $41.40 to $1314.10 in August gold futures. Such strong momentum will surely not be immediately reversed. Also, the bears who did not take their losses yesterday will be holding out and possibly selling more into strength, hoping we correct low enough to let them out at a profit. Big money rarely lets that happen. They will probably keep gold above $1300 and make the bears who sold under $1300 take their loss. In the good old days of the 80s and 90s, brokerage firms would give small traders 5 trading days to liquidate or add funds to their account. I assume the same rules apply today (I would not know as I have not had a margin call and don't know the current rules). Anyway, I expect for gold to top out towards the $1341 area or higher, as mentioned in Gary Wagner's video, and to move sideways to higher until next Thursday, June 26th. I am also looking for a late day rally today, Friday June 20th, as bears may not want to be short over the weekend and could panic late today if we start to rally late.

The Ukraine news was no big deal, but the current problems in Iraq are the real deal, as the U.S. may have to do bombing missions or provide other assistance. You know it is a real crisis when the U.S. is looking to cooperate with their arch enemy Iran. The bullish setup was there, it just needed a catalyst, a match, to get the fire going. I think the fire will accelerate before it burns out. Although we will likely have order restored soon and will likely again trade towards the $1285 area again in August gold, there is an outside chance that we move to $1350, $1400, or even $1500 in the not too distant future. If you are shorting gold now with no protection, realize the risk is to $1500. This explosion out of the bottom, reminds me of 2011. Back then gold corrected from $1576, to a low of $1493 in late June. And two months later gold was trading above $1900. We will surely not hit $1900 by August of 2014, like we did in August of 2011, but we could get a quick move to $1500. Something to chew on.


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.