A Flashing Warning Light For Gold & Gold Miners

posted in: Charts, Gold, Gold Stocks | 0

Everyone has been watching the pennant pattern in gold this week and today it appeared that gold was breaking out to the upside and headed to ~$1300:

 

Gold (Daily)

Gold_Daily

The key word is “appeared”. After trading as high as $1254.20 gold has dropped $25 and is actually on the verge of falling back inside the top rail of the pennant pattern. Just as we suspected earlier in the week the initial break from the pennant pattern turned out to be a false move and now there is considerable potential for gold to see downside follow through over the coming days. This downside potential is exacerbated by the large increase in speculative long positioning in recent weeks and bearish seasonality (March is the worst month of the year for gold historically).

Gold miners (GDX) have now retraced half of the entire decline from the July 2014 peak to the January 2016 low and at this morning’s high found itself right back to major support/resistance from 2014/2015:

 

GDX (Daily)

GDX_Daily_2.24.2016_001

The $20 level in GDX was a ‘price magnet’ for nearly a year and the amount of overhead supply at this level is surely enormous. Add to that the 60% rally we have seen in barely more than one month and you have all the ingredients in place for a short/medium term top:

 

GDX_60

Today’s large high volume black candlestick is flashing warning light that the furious rally in the gold miners may have reached a temporary apex. The finish to the week now becomes nothing short of crucial.