Back on September 21, we looked at the price of gold and gold mining stocks, and I told you that it might have bottomed.
On September 21 I wrote:
Last week and so far this week, the price of gold has also traded above the 9-12 month cycle moving average. These are both signs that those cycles have bottomed, and are poised to turn up. Gold must now close above the high of the range of the past 4 weeks of 1215 to confirm a tradable upturn in those two cycles. If it does, it could be off to the races.
I suggested a couple of low risk plays to participate in a rally.
Both gold itself, and the mining stocks have since had a nice move.
So far, the market has lived up to our expectations.
Last week, gold closed above 1215 and it has slightly extended that breakout on Monday. That’s a signal that we’re in a tradable rally, although I’d like to see it close above 1215 again this week.
A weekly close below that level would be a false breakout. They’re always problematic. We would need to turn a skeptical, risk averse eye on this rally if that happened.
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But if it doesn’t, the upside potential looks really promising.
The red channel, and the dotted lines projected from the upper and lower bands represent a nominal 18 month cycle. JM Hurst, the father of cyclical analysis, called cycles “nominal” because they normally vary in duration. For a cycle of this length, several months of variance in length is quite normal.
Back at the spike low in August, the cycle was 21 months from its previous low. It was overdue for a bottom. Now the price is challenging the upper wave band projection of that cycle. The price needs to end this week above 1240 for a clear breakout. Anything less would be borderline.
If it does that, then the metal would have clearance to run back to a previously broken uptrend line now around 1275. It could do that quickly.
On the other hand, if it fails to break out, then we could still be in the grips of a bear market. A subsequent weekly close back below 1190 would make me want to avoid the metal again.
The monthly chart looks promising though:
Halfway through October we have cleared a 6 month downtrend line. If the price holds above 1200 this month, then we could be on our way back to the top of the 4 year range at 1369. If we don’t hold, then gold would threaten to head back toward 1000.
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Here’s How My Recent Gold Recommendations Are Fairing, and What Else We Can Expect
In my previous post on gold, I suggested that a low risk way to play a rally would be to buy calls on the GLD gold ETF:
The current level on GLD that corresponds with the 1215 level on gold is 114.80. So if gold has a weekly close above 1215, we could buy the GLD 115 calls, with approximately 1 month remaining until expiration, to participate in any rally.
The price moves in the ETF closely approximate those of the metal.
GLD broke out on Thursday, October 11. It was abundantly clear on Friday that it would hold above that level. The November 9, 115 calls closed at 1.70 on Friday after fluctuating between 1.69 and 1.82.
If you followed along with this trade guidance, you would be in the trade with 3 weeks to go. It looks promising, but like any option trade it’s not a lead pipe cinch and the risk is 100%. If GLD has a daily close below 115, I would close the call trade and take the loss then, rather than hold it with the possibility of seeing it go to zero.
I also suggested a call trade on the gold miners ETF GDX.
Its weekly chart is also promising, but at the same time problematic.
This chart shows that the ETF has turned up and broken a couple of key cycle moving averages. That’s a positive. But momentum and cycle indicators are still iffy, and there’s a wall of potential resistance right at 21.
And finally, on September 21, I suggested the purchase of the GDX 18 calls, with around a month to expiration if it looked like the GDX would end the week above 18. It closed that day at 18.78.
The October 19, 2018 18 calls were at $1.02. As of Monday afternoon, October 15, they were trading at 2.08 bid. At just over a double, and with time running out, I would sell those. We can look to buy the next series on a pullback if the chart still looks bullish. We’ll have to see how the GDX performs as it attacks resistance at 21.
I’ll keep you updated on how these recommendation are performing.
For more recommendations, take a look at a few of Chris Johnson’s plays here.