(Kitco. Fri. Dec. 1st , 2023) – see After a week of light holiday trading volume in the gold space, further weakness in the U.S. Dollar coming into the last week of November took the USDX below critical support at 103. The move below this important line of support in the world’s reserve currency catapulted the gold price to 6-month highs on Tuesday and Gold Futures are now within striking distance of all-time highs.
Gold’s bullish momentum gathered pace Tuesday after Federal Reserve Governor Christopher Waller, one of the central banks most influential voices, signaled that interest rates were unlikely to rise further and could be cut if inflation continued to slow.
When combined with last week’s FOMC minutes stating that committee members noted the risk of higher-than-expected inflation and weaker-than-expected U.S. economic growth – the very definition of stagflation – the gold price began to explode higher after Waller’s comments.
For the past 12-years, the gold price has created a technically uber-bullish Cup & Handle patternthat will be completed once the $2100 level has been breached on a monthly closing basis. Also, within the 3.5-year handle, gold is set to break out from a giant consolidation inverse Head-and-Shoulders pattern.
Considering the significant amount of energy accumulated in the gold market since the first failed attempt to breach $2000 in 2011, the subsequent breakout rally is likely to be spectacular. A weekly/monthly/quarterly/yearly close above $2100 on December 29 would likely trigger a strong advance in 2024 with an initial cup & handle breakout target of $2500, and Fibonacci measurements being $2460 and $3300.
During the current secular gold bull, which began at the turn of the century, this is the second time a more than decade-long cup & handle formation has materialized on the monthly gold chart underneath an important round number.
From 1995 into 2005, the gold price produced a similar bullish technical set-up, when the safe-haven metal took 9-years to form a cup below resistance at $450 per ounce. The subsequent handle took 2-years to complete and after a monthly close above the psychologically important $500 level in mid-2005, the gold price had doubled by late 2007.
Once bullion eventually reached the key $1000 level back then, sellers came in quickly as the safe-haven metal became extreme overbought while reaching an all-time high at the same time. It was not until the first monthly closing above $1000 in late September 2009, which triggered an explosive breakout rally. Over the ensuing 3-months, gold prices moved sharply higher, surging by 25% to $1225 without any notable pullbacks.
Gold reacted violently when reaching the psychologically significant round number $1000, and did so again multiple times at the $2000 region. After creating countless bull-traps around this key level since hitting an all-time high at $2089 in mid-2020, the side-ways price action over the past 3.5 years has kept momentum traders, funds, and generalists on the sidelines. And each time the safe-haven metal reversed from $2000 in seven of the past eight months, frustrated gold stock investors grew more emboldened to sell for tax-loss.
With the December Gold Futures contract rolling over into February on Tuesday, the gold price moved quickly through near-term resistance at $2020 as frightened shorts began to cover. By the time the dust settled at the end of November, Gold Futures had finally vanquished the bullion banks’ Maginot Line of critical resistance at $2000 with a strong close above this psychologically important level to end the month at $2057 on Thursday.
Meanwhile, as mentioned in this space two weeks ago, a bullish inverse Head & Shoulders bottoming pattern has been developing in the miners over the past four months on XAU, HUI, GDX, and GDXJ. As the gold price sailed above $2020 on Tuesday, a neckline breakout occurred above stiff resistance at $30 in GDX and $36 in GDXJ with convincing volume, while many higher-risk juniors began to outperform.
Perhaps more importantly, another technically bullish setup in the mining space has taken place over the past three weeks. On the weekly chart, a potential “Three White Soldiers” candlestick pattern likely will be completed at the close of trading later today. Three white soldiers is a bullish candlestick pattern that is used to predict the reversal of the current downtrend in a pricing chart.
This pattern is typically observed as a reversal indicator, often appearing after a period of price decline and suggests a strong change in market sentiment in terms of the stock, or commodity, making up the price action on the chart.
With three white soldiers being a bullish visual pattern, it is used as a potential entry or exit point for savvy traders. Traders who are short on the security look to exit and traders who are waiting to take a bullish position see the three white soldiers as an entry opportunity.
Three white soldiers recently developed in miner ETFs as smart money began to price in a $2000 floor in the gold price after the psychologically important level had been critical resistance for the past thirteen years.
After alerting my readers to a similar three white soldiers pattern developing in the mining space back in June 2019, both GDX and GDXJ exploded 50% higher from their lows in four months. At that time, the $1400 level had been resistance for the previous 6-years before this bullish technical set-up signaled a gold breakout to $2089 by mid-2020
With tax-loss selling and fund redemptions having dried up in many juniors ahead of year-end, this high-risk sector has shown signs of capitulation selling ending over the past month. In fact, many juniors have already experienced +20-30% gains this week on strong volume as they begin to play catch-up to a mining sector that bottomed in September 2022.
It is also important to point out the coming mid-December MarketVector rebalance of both SILJ and GDXJ, which may affect several stocks included in these ETFs considerably in either direction. In mid-December 2022, several juniors were rebalanced higher by VanEck after the mining sector set a significant low in late September last year.
Although gold stocks have become technically short-term overbought, it appears as though the algorithm switch flipped this week from excessive bearishness to newly bullish in this tiny sector. With investor mindset going from selling strength for tax-loss in underperforming juniors to buying weakness in extremely undervalued juniors as the gold price creates a new floor at $2000, recent weakness is now being bought quickly in the quality issues.
The last time we saw a similar set-up in the gold stock complex, creating a low-risk opportunity in best in breed juniors at fire-sale prices, was in late 2015 which proved to be a significant bottom. Once the algorithm switch flipped from ultra-bearish to newly bullish during the second week of 2016, both GDX and GDXJ surged over 140% in just 6-months, while several quality juniors experienced 5-10x gains.
Recent events have created a generational opportunity to accumulate historically undervalued quality precious metals related juniors ahead of the most important gold breakout in over 50-years. According to Bank of America, 71% of wealth advisors hold 0-1% of gold in their portfolios, while the entire market cap of the mining space is equal to less than Home Depot’s at just $300 billion.
Once gold breaks out to new all-time highs, the mainstream media will start paying attention to gold stocks, while momentum traders and fund managers will begin moving into the under-owned junior space. With most generalists still on the sidelines, it is best to position oneself beforethe herd comes into this tiny sector.
In anticipation of the incredible gains the junior sector will begin to experience once the gold price prints a technical breakout above $2100, the Junior Miner Junky (JMJ) newsletter has accumulated a basket of quality juniors with 3x-10x upside potential into 2025-26.
Posted by:
Jack Dempsey, President
401 Gold Consultants LLC
jdemp2003@gmail.com