When the market sold off on Monday, the gold mining stocks fell with the broad market early. But around the middle of the day when the stock market selloff accelerated, the gold stocks suddenly held their ground and quickly reversed into a spirited rally. The rally came from a critical support area near the 170 level on the HUI gold stocks index.
Since late 2016 HUI has had a 3 to 6 month cycle of lower highs and lower lows. A pattern like that is typically a bearish major trend. But in this case those downticks to lower lows were very slight. There was no follow through. As a result a clear support trendline formed. This week, that trendline is at 167.75. It is critical to the outlook.
As you recall, my old friend LeeWhee who went to the great trading room in the sky back in 2007, left us with the pearl of wisdom, “The more often support is tested, the weaker it becomes.” This support trendline has now been tested 5 times in 13 months. That means that the potential for a breakdown is increasing.
But at the same time, there’s an even more important long term support zone around 150-60. So if HUI does break support around 167-68, I would be looking to buy in that 150-60 area for at least an intermediate term rally.
You may not know it, but these miners consistently outrun the price of gold, sometimes many times. For every 10% move in the gold price, they have been known to move 20%, 50%, 100% or more.
And on March 21, thanks to a little-known Fed announcement — they’re expected to make their next big move.
If you think gold could hit $3k, you’ll want to read this.