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If the dollar does not recover quickly, gold may face greater selling pressure.
Gold continued to strengthen this year, and the stock market rebounded strongly, which is impressive. David Erfle wrote on Friday (February 8) that since the end of 2018, global stock markets have pulled investors into roller coasters, and gold prices have risen by 10% from their August 2018 lows, with little fall. As gold starts to rise in price and time, it is natural to expect gold prices to at least take a small part of the recent gains. China's stock market was also closed this week due to the Chinese New Year holiday, which caused a huge demand for the industry to disappear.
Erfle writes that, in addition, the US dollar rebounded above the 50-day moving average after testing its 200-day moving average cut-off last week. Although the price of gold has remained above $1, it is higher than the closing price of this widely watched benchmark trend line, which has strained many gold traders. This makes sense given the sensitivity of gold to the dominant trend of global reserve currencies. Most analysts believe that the dollar is already in a long-term high, so if the recent decline can not be quickly restored, the gold sector may face greater selling pressure in the next few days or weeks.
At the same time, in the past two weeks of trading in January, fund managers who were not well-informed by gold mining companies pushed GDX up 13% at the end of the month. After financial advisers were asked by customers why they underestimated the best performing asset classes in the past six months, fund buying at the end of the month was the main reason for GDX's rise for eight consecutive trading days on the last day of January.
However, the global miner ETF will also have a callback. Since the price of gold began to break through $1,300 a few weeks ago, the fund’s performance has been stronger than gold. After the resistance level of nearly $23 at the end of January, the profit-taking volume decreased this week, making the decline so far orderly. This is a healthy behavior, rather than smashing the hopes of long-suffering gold speculators with high volume and red candle reversal after overbought in the industry. Support at $21.50 is well supported, while support at the 200-day moving average is slightly below $21.
However, although GDX has been correcting recent gains, there has been some optimistic development in the industry this week. With the adjustment of the gold space, the price of a few silver futures owned and/or followed by Erfle has been rising strongly. Historically, when silver prices led gold, it was good news for the sector. However, historically, the performance of the silver market is better than the gold composite index, which has always been an important industry bottoming indicator. In addition, there are many small gold stocks that send out buy signals, and a few are at multi-year highs.
In addition, according to a new report from the World Gold Council (WGC), global gold ET holdings increased by 72 tons in January to 2513 tons (80.8 million troy ounces), the highest level in nearly six years. The industry group said that capital inflows were driven by market uncertainty and market sentiment, which led to a 3.5% rise in gold prices in January.
The World Gold Council also stated in the report that it believes that “the net long increase, but still below the historical average”. But this remains to be seen, as the US government is closed and the current popularity and position of the Comex futures are unclear.
Gold futures prices have strong support at the level of $1,280, which remained stable after many tests in January. In the first three weeks of 2019, the market stabilized below $1,300, and gold as a safe have cleared this important barrier in a convincing manner. The Fed’s policy shift last week was very favorable for gold, so Erfle expects that the region will not be broken at the close of the weekly line unless the dollar continues to rise.
Still, as the $1,275 level is cleared, it will find strong support at the $1240-1250 level. During this adjustment, GDX will also need to maintain a good bid above the 200-day move, otherwise Erfle will be worried about what went wrong. At the same time, the sector is still an alternative market until GDX finally closes above the long-term resistance of $25.
Editor in charge: Li Limeng RF13188
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