Gold Unable to Break Out, So It Breaks Down
Just twohours before the Cambridge House International Mining Investment Conferencebegan in Vancouver on Tuesday, the gold price broke critical support at $1300. Aftertrying repeatedly for three months, the safe-haven currency had been unable tobreak out above multi-year resistance at $1375.
As mentioned last week in this column, surging crude oil onthe back of Middle East tensions had been supporting gold the past few weeks butthe dollar, hitting a five-month high was too much for the bulls to continuetrying to hold major support in the yellow metal. Once $1300 gave way, a stoprun took gold down to the mid-$1280’s and we could see the $1280 region hitbefore an over-sold bounce takes place.
The retailcrowd at the conference was very sparse, as the unseasonably warm weather andcascading gold price kept many of the over 2,500 who had registered from makingthe trip to the Vancouver Convention Centre. However, those who managed to showup had as much time as they needed to get information from the nearly 100companies at the conference. I consider these mining conferences to be vital inestablishing relationships with management of my junior resource stockinvestments and the low attendance to be an indicator of the “boredom bottom” continuing to form in the miners.
Althoughmany of the small and micro-cap resource juniors continue to trade lower, theGDX has managed to remain well above critical support at $21. Moreover, whenthe gold flood gates opened on Tuesday and bullion closed down over $20, themajor miner ETF was able to close above its 50-day moving average on just 60million shares of volume. Historically, when such a critical and psychologicalsupport level has been broken, the GDX trades on much stronger volume of aroundat least 100 million shares. This tells me the sector may be running out ofweak handed sellers in the miners.
During mypresentation at the conference, I warned of possible continued gold-sectorweakness into the next Federal Reserve Open Market Committee (FOMC) meetingspeech on June 13. The 10-year U.S. Treasury Note surged above 3% and alongwith the U.S. dollar index, which pushed back above 93, was instrumental in thegold price losing the 13-handle. The world’s reserve currency now has a technicaltarget of 95 on the cash-settled index and the yield on the 10-year Note mayhit multi-year resistance at 3.20% on this move. The 3.20% yield area is majorresistance which dates back to the 2008-2011 period and I expect this level islikely to put a lid on this rally. The possibility in both the dollar and the10-year Treasury Note continuing to rise toward these technical targets, means minerinvestors should psychologically prepare for $1250 gold perhaps being testedbefore the FOMC meeting next month.
A few weeksago, I warned my subscribers of this scenario possibly unfolding and to buildup some cash. Although the market has priced in another rate hike next month,traders will be looking for clues to a conceivable fourth rate-hike takingplace this year in the language of Fed Chair Jerome Powell’s speech andfollowing press conference on June 13. An over-sold bounce should happen in thegold space soon but caution is still advised until the market has digested whatthe Fed has to say next month.
By David ErfleContributing tokitco.com
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