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Any Green Flags For Gold?

Jul. 11, 2013 12:07 PM ETGLD, GDX, GDXJ
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TomAspray's Blog
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Recent data of ETF inflows and outflows is pretty much what most investors might expect but many have wondered whether this data can be used as a contrary indicator for various markets. The WisdomTree Japan Total Dividend Index (DXJ) that I reviewed yesterday had the largest inflow of $8.3 billion in the 1st half of 2103.

It should be no surprise that the biggest outflows-$18 billion-were in the SPDR Gold Trust (GLD), which was over double the $8.2 billion outflow from the iShares Emerging Markets (EEM). Also high on the list was the iShares Barclay TIPS Bond ETF (TIP), which lost $4.7 billion.

The bearish sentiment on gold has been very high for many months but that did not help GLD from avoiding a double digit slide in June. In the early May article, The Most Vulnerable Market, the technical outlook on both the SPDR Gold Trust (GLD) and the gold miners pointed to still lower prices.

The typical seasonal pattern is for gold to bottom in early July. In June 2012, the high negative sentiment coincided with positive technical signs that set up a good buying opportunity. Both the gold futures and the leading gold ETFs closed June below their monthly starc+ bands making them oversold but does that mean you should be looking to buy now?

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Chart Analysis: The weekly chart of Comex Gold shows that prices are getting closer to the 61.8% support at $1150.80 that is calculated from the 2008 low. The low last week was $1206.90.

  • Analyzing data back to the mid-1970's there is a seasonal tendency for gold to top on February 1, line 1.
  • The tendency is then for gold to bottom on July 5, line 2, and rise initially into October.
  • The weekly chart of the gold futures shows strong resistance now in the $1320-$1335 area, which corresponds to the April-May lows.
  • The quarterly pivot stands at $1345.40.
  • The monthly, weekly, and daily technical studies (not shown) are negative as they did confirm the recent lows.

The SPDR Gold Trust (GLD) finished 2012 at $162.07, and with Wednesday's close, is down over 25% for the year.

  • The break of support, line a, on April 15 triggered major selling as it dropped over 5% in just two weeks.
  • The major 61.8% support is now at $111.81.
  • This decline confirmed the deterioration in the volume pattern that had been evident since February.
  • The on-balance volume (OBV) broke major support at line b, as the OBV had been below its declining WMA since late 2011.
  • The OBV rebounded back to its declining WMA in early June before the recent drop.
  • The OBV shows a pattern of lower lows (see arrow) and the longer-term uptrend, line c, has also been broken.
  • The quarterly pivot is at $129.89 which represents the first strong resistance.

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The daily chart of the SPDR Trust (GLD) shows the break of support at $130.68, line a, on June 20.

  • GLD spent several days in late June at the starc- band before it rebounded.
  • The declining 20-day EMA is now at $123.80 with the starc+ band at $125.
  • The daily OBV did make a new low with prices, line c, and has just moved back above its declining WMA.
  • The OBV shows a long-term downtrend (line b) that is well above current levels.
  • There is initial support at $117.68 to $119.34 and then at $114.68, which was the June low.
  • The short-term chart pattern suggests this is a pause in the downtrend that should be followed by a further decline.

The Market Vectors Gold Miners (GDX) peaked last September at $55.25 and hit a low last week at $22.21, which was a decline of 59.8%.

  • The close below important support, line d, on February 15 was a very negative development.
  • The gap lower in April and the close below the starc- band set the stage for an eight-week sideways pattern before the decline resumed.
  • The starc- band was again tested last week with initial resistance now at $26.24 and the quarterly pivot is at $28.03.
  • The weekly starc+ band is now at $31.65 with the downtrend, line e, at $36.27.
  • The weekly OBV dropped below seven-month support, line f, at the end of March.
  • The OBV rallied back above its declining WMA in May before prices plunged again.
  • The OBV made new lows last week with prices. The monthly and daily OBV (not shown) also did confirm the recent lows.

What It Means: Though the seasonal tendencies can be quite important, significant lows or highs need to be confirmed by the technical studies.

The gold miners are now being recommended more frequently, but the technical outlook for the Market Vectors Gold Miners (GDX) and the Market Vectors Junior Gold Miners (GDXJ) show no signs yet of a significant bottom. The same is true of the SPDR Gold Trust (GLD) so a further rally is likely to just be an oversold bounce.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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