Gold stop-run below $1920 extends miner consolidation
Unprecedented global stimulus measures, negative real rates, and a weakening dollar pushed gold futures to a record high of $2,089 per ounce in early August. After printing a quarterly basis close above $1800 for the first time in its history in Q2 2020, the safe-haven metal blew past the former all-time high of $1920 seen back in 2011.
With congress arguing over the terms of the next stimulus package, coupled with a strong bounce in the U.S. dollar, weak-handed long liquidation is being featured this week in global equities, along with the gold complex. Earlier this week, December Gold broke down from an 8-week consolidation pattern below the former all-time high at $1920, then we quickly experienced a stop-run down to the $1850 level into Wednesday night in overseas trade.
Nevertheless, technically, the short-term implications for the gold complex are a bit cloudier. December Gold will need to hold the $1865 level on a Comex closing basis this week or we could see the much stronger $1750-$1800 region come into play. Gold futures basis $1800 has technically become a critical support level, being an area where we have seen plenty of resistance going back to the 2008 gold bull.
The 200-day moving average in December Gold is starting to reach towards the $1750 level as well, so that might tie in quite nicely for a more sustainable bounce along with increasing interest by the longer-term “buy-and-hold” investor.
With plenty of uncertainty on tap heading into the U.S. election on November 3rd, we cannot rule out this possibility. I expect the biggest possible catalyst for gold testing this lower region would be margin-call selling in equities along with heavy U.S. dollar inflows during “crash season.”
What we are experiencing in the gold space is an extended consolidation after a period of exceptional price strength. This is to be expected and very healthy with respect to Phase Two of a sustainable rising secular gold bull market that began in late 2015.
The gold bull will do everything in its power to shake off as many riders as possible. Since we are now in a buy and hold bull market in the mining sector for the first time in nearly a decade, maintaining core positions while trimming profits after over-sized gains is strongly recommended in the long-term.
Reference: Kitco
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