The Gold Market Is About To Get Much Worse Before It Gets Better

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May 9, 2017 6:24am NYSE:GLD


From Mike Burnick: It’s been a painful three weeks for gold bulls, or anyone who has been long precious metals or gold and silver miners, for that matter.

Take a look at how the precious metals and gold miners have performed since April 17th:

  • Gold down over 5%,
  • Silver plunged a whopping 13%,
  • Platinum down over 9%,
  • GDX, the large-cap gold- and silver-miner ETF, down almost 12%, and
  • GDXJ, the junior gold- and silver-miner ETF, fared much worse, down over 16%.

It’s been an absolute bloodbath.

Last week, a trapdoor opened underneath gold, silver and the miners, with the yellow metal plunging over $40 an ounce.

Gold closed on Friday at $1,227, violating key daily supports at $1,250 and $1,245 in the process. That turns the short-term trend bearish, warning that a further decline is possible. And the weekly close below these levels confirmed a bearish posture near term.

The metals and miners are all deeply oversold, but is the worst of the selling pressure finally over?

According to our Edelson Institute E-Wave cycle forecast model – not quite yet.

As you can see in the chart on gold, we should see a near-term bounce in gold sometime soon, before the downtrend is expected to continue into early June. The charts for silver and for gold and silver miners all show a very similar pattern to that of gold.

However, as mentioned above, gold and silver are quite oversold already, with gold down nine out of the past 15 trading days. And for silver, the selling has been more intense, down 14 of the past 15 trading days, ditto for the miners.

Following a sudden, waterfall decline like this, the best trading strategy is to wait for an oversold bounce to reassess your holdings, NOT to sell in a blind panic with the markets so deeply oversold already.

Also, don’t forget that some of this selling pressure can be attributed to the rebalancing of the underlying index for GDXJ (VanEck Vectors Junior Gold Miners ETF). The indiscriminate selling has put pressure on the sector due to the redefining of the index methodology and NOT based on the underlying fundamentals of companies that make up the index.

There are still a lot of high-quality companies being sold off for no good reason, other than market cap. Once the dust has settled, this may provide an excellent buying opportunity for attentive investors to pick up some high-quality, small-cap, mining stocks on the cheap. Stay tuned!

The SPDR Gold Trust ETF (NYSE:GLD) fell $0.18 (-0.15%) in premarket trading Tuesday. Year-to-date, GLD has gained 6.51%, versus a 7.22% rise in the benchmark S&P 500 index during the same period.

GLD currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #3 of 33 ETFs in the Precious Metals ETFs category.

This article is brought to you courtesy of The Edelson Institute.

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