If you follow my blog or follow me on twitter, you know that I have been a gold bear for the past year which has not really helped or hurt me as gold has been range bound. I expected a washout to the downside that never really occurred. There were some ugly days and some days that hurt a lot of gold bug's feelings, but no real washout. I mentioned on twitter three weeks ago that I was buying a miner (Goldmining Inc. in this case) and when I made that purchase I owned zero mining shares and zero GLD, only had my physical stash. Speaking of, I will be using GLD as my proxy for the rest of the article.
Obviously this trade is off to a good start but when I bought this one particular miner it was more because I loved the chart than because I was bullish on gold. I have been watching closely and am now confident that the setup is worth putting a good bit of money to work on. The positioning looks good right now as I mentioned in the tweet, but it is not historic or anything. That said, there are some short term political, geopolitical, and liquidity issues that may help the price, especially the debt ceiling "debate" we have to suffer through yet again. I am not particularly in love with any of those as long term drivers but I could still see a nice uptrend forming right now and perhaps the bigger catalysts forming in the next, call it 18 months. I have seen enough to put on a decent sized trade, but one I can still add to if we get the breakout I expect. If no longer term catalysts form after this breakout I will take profits and scale out, but I am hoping it becomes a secular move higher and not just a cyclical trade.
It is worth noting that fintwit was FULL of "oh my God gold is breaking out!!!" fanfare whenever gold was said to have broken above its down trendline (including investors I admire a lot). I have my trendline drawn differently and publicly disagreed with that couple weeks of gold bug euphoria. Well on my chart today gold sits literally right on my trendline and I am confident it is going to breakout to the upside with what may become a violent move higher in the coming weeks. My tweet below was the week before gold got smashed by my trendline and GLD fell more than $5. Maybe gold sells off again at my line but with the recent price action in miners - I think it breaks higher. This is the 2011 trendline just to clarify the significance of the breakout. On my chart this will be the third swing at my line and I think it will be a winner.
Enough talk...let's take a look at the charts!
First up is GLD and as you can see we are sitting right no my trendline.
Below is GDX and as you can see GDX broke its down trend from the past nearly year but the 2011 line is still waiting in the bushes just above current price. GDX breaking the 2011 line is one of the indicators I want to see before really putting on size.
Similar story for the juniors below. What I like here is how the up trend was regained and the recent down trend was broken last week. This is what started to really catch my attention to watch for a breakout for the gold price. I do not find a helpful trendline on GDXJ from 2011 but do have one from 2012 and it is similarly placed to the one on GDX. I will be watching it closely as well.
So we have miners breaking ugly trends, commercials buying gold, the debt ceiling and a potential conflict on the Korean peninsula (even if just a skirmish) around the corner which is all great...but...what about the dollar?
Well I have been a structural bull on the dollar for a while and it may be a headwind if it turns around here at its final support for a long ways. With that said my confidence on my gold thesis has me pretty worried about the dollar (unless us crazies that see them rising in tandem are right really soon). The chart is really ugly right now and I struggle to imagine what saves the dollar short term. The trendline is a long way from helping and the floor could give out despite the sentiment and positioning already going against the dollar. I have thankfully traded the dollar fall well despite my medium term views and have enjoyed the reflation windfall of the past couple of months. Been rolling some of those profits into cash and bonds (love Canadian government bonds) and some other trades on the other side of this reflation boom just in case it gives way soon. When the debt ceiling issue leads to a giant sucking sound which happens to be liquidity, how the dollar and gold react will really shape my views going forward. It will be fun to watch and as of today I am long gold and expecting a nice move higher, even if it does not turn into the next leg and $2,000 gold.