Investing in gold has had a tremendous run higher in the first half of 2016, up almost 30% in six months. I’m a long-term gold bull but I continue to see headwinds in the near-term. Let me show you why.
GLD, the ETF that represents physical gold, hit its high of 130.52 early in July. Since then gold has traded in a very narrow range of only 4%. It’s made a series of lower highs but seems to be holding the recent lows, as highlighted by the blue lines in the chart below.
The SSI Trend is also flattening, following the powerful move higher over the first half of this year.
My proprietary time-cycles analysis continues to paint a tough picture for gold as well.
Seasonally, gold tends to peak in early October as the Indian wedding season and pre-holiday buying of the jewelry makers wind down. The time-cycle chart above is running a bit ahead of the seasonal trend, but is clearly consistent with this trend.
The volume-at-price (VAP) chart on gold shows that gold is smack-dab in the middle of its strongest overall price-volume resistance for GLD just below $130. More GLD shares have changed hands around $127 – $129 in the past four years than at any other price level.
Finally, we look at some key indicators from the gold futures market. Commercial hedgers (aka smart-money sentiment) continue to be bearish at historical levels while open interest (aka the number of open futures contracts) continues to be very high.
We wrote earlier this summer that these extreme levels of smart-money bearishness and high open interest could have miners locking in prices that they felt were too good to pass up. We continue to believe that to be the case.
The same headwinds working against a rising price of gold are also holding back the gold miners. The SSI chart on GDX, the ETF of the largest gold miners, shows the picture very clearly.
I’m definitely not selling but I’m still holding out for a shakeout in the precious metals sector before I add to any of my positions.
To the patient go the profits,
