This afternoon, as I watched the GDXJ (the GDXJ is technically called the VanEck Junior Gold Miners ETF although VanEck Mid-Tier Gold Miners ETF would be a more appropriate name) drift lower in light volume trading for the 6th consecutive trading session, I wondered when was the last time GDXJ had fallen six consecutive days with such a small net loss (-4.22%):
The answer is never. The last time GDXJ fell for six consecutive trading days in a similar low volatility fashion was February 2013 (-5.8%), which turned into a 12 session losing streak and eventually a complete obliteration over the next few months (-40%+ between the beginning of February and the May 2013 low).
This time is different in that GDXJ is at a much lower level than it was in February 2013 and the current realized volatility is much lower. In fact, on a percentage basis GDXJ is currently experiencing its lowest volatility since inception:
GDXJ (Daily – September 2012-August 2017)
It’s also worth noting that the GVZ (Gold Volatility Index) is plumbing near record low depths after dipping below 10, albeit briefly, in June.
While the current ultra-low volatility environment is significant in itself, the fact that it is occurring within the context of a multi-month symmetrical triangle, which is nearing its apex, adds extra significance.
The picture in the GDX looks very similar, with an almost identical 6-day decline amid ultra-low volatility:
Considering that late-August and September have a tendency to see a spike in volatility across asset classes, including precious metals, I believe there is a good probability that we will see a resolution to the triangles in the gold miners during the next 4-6 weeks. Moreover, this resolution could result in a powerful directional move simply due to the sheer amount of potential energy which has built up during the last few months.
My inclination is that this resolution will occur sooner rather than later. The $23 resistance and $21 support levels in GDX will be crucial to keep an eye on over the coming weeks.
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