Is There a Bullish Case for Gold?

June 12, 2017

Mish's Daily

By Mish Schneider

Before I go into gold, some follow up on Semiconductors, NASDAQ, and the other members of the Modern Family.

Over the weekend, we wrote about sector rotation. The crowded space in tech saw many getting uncomfortable in that crowd.

SMH, the ETF for Semi’s crashed last Friday. NASDAQ and the FANG stocks took Semiconductor’s lead.

Meanwhile, the Russell 2000 made new all-time highs. Transportation and the Financials firmed. Even the infirmed Granny Retail (XRT) held onto the major support levels and turned green.

Expecting digestion in SMH, QQQs and the FANG stocks, instead Monday opened to lower lows. And although all recovered from their lowest intraday levels, they closed below Friday’s closing prices.

Simultaneously, although still firmly above support at 140, the Russell’s felt the pressure. So did Regional Banks, although it managed to hang on by the close to end unchanged from Friday’s closing prices.

Granny Retail kept up the optimism as if to say, “Mallrats, you done with online shopping yet?

Transportation closed the strongest. One more kick over 170 should keep that sector happy.

The Fed will have a tough decision to make. Raise the rates with underachieving inflation numbers yet confidence in the U.S. economy. Or keep the status quo given the volatile geo and domestic political situations.

Why then, would I offer you what some will consider bold analysis given the aforementioned?

Last week, gold rallied to just over $1298 an ounce. If you look at the weekly chart on the left, GLD sits in a bullish phase.

From a technical standpoint, gold miners tend to lead before gold makes a move higher. However, GDX, unlike GLD, sits in a warning phase. GDX is not currently leading.

What can we assess from that?

Provided GDX does not break below the 200 week moving average (solid line), best we can say right now is that GDX consolidates while GLD tries to dispel the GLD/GDX ratio theory that GDX must lead.

So, what can make GLD go up independently of GDX?

GLD reacts best to either inflation or uncertainty. Should the FED do nothing, GLD could surmise that they want to see higher inflation.

Should the FED raise and GLD hang on above the MAs, then we can attribute uncertainty as the root cause.

Should gold miners pick up, a rally in GLD is a given.

Technically, GLD has made higher lows since the nadir in late 2016.

On the last dip to under 116, buyers came in with conviction the following weeks. Can we make a case for “uncertainty” as the root cause? Ya think?

Does that mean that this week folks feel less uncertainty?

Well, clearly a run in Transportation could help investors feel better about the U.S. economy and an interest rate rise.

Nonetheless, I see that as ephemeral. Should any of the following circumstances intensify: 1. Russian probe 2. Terrorist attacks, 3. British elections 4. North Korea 5. The Middle East and 6. No foreseeable changes in fiscal policies, the first place investors will run to is GLD.

If GLD holds the 119 area that indicates buyers willing to hold. Should GLD clear 121.35-122, I like the risk/reward. Should GDX clear 24.20, no brainer.

Should the world and the U.S. rest on the laurels of stablizing influences outdoing all of the uncertainty-nevermind!

S&P 500 (SPY) This had an inside day and held above the fast-moving average. Over 244.50 back in biz. Under 242 see 240.

Russell 2000 (IWM) Inside day. With a monthly channel top at 142-143 level, Friday tested that top. The month is young. Either this takes a bigger lead, or that was it-party over.

Dow (DIA) Inside day. 211 pivotal

Nasdaq (QQQ) 136.85 the 50 DMA support.

KRE (Regional Banks) 56.00 pivotal with 53.60 the underlying support

SMH (Semiconductors) 81.92 the 50 DMA.

IYT (Transportation) Resistance all the way up to 172.89. Support now at 167

IBB (Biotechnology) 291-292 must hold and the elusive 300 must clear.

XRT (Retail) 41.00 pivotal and 42 the overhead 50-DMA

IYR (Real Estate) Held all the moving averages but still in massive consolidation between 77 and 81.

XLU (Utilities) 53.25 area near-term support.

GLD (Gold Trust) 119.85 the underlying 50-DMA. 124.50-125.50 next big resistance

GDX (Gold Miners) Converging Moving averages so wouldn’t give up yet if this can clear over 23.30

USO (US Oil Fund) Still looks heavy