Gold stocks took it on the chin today's trading, as the the Market Vectors Gold Miner ETF (ticker GDX) fell by 3% on elevated volume. In fact, the volume levels, $32 million, was one of the highest turnover rates we have seen in the last twelve months. This caps three days of selling (and for those looking at patterns, the set up could be a three black crows, a supposedly ominous signal. I am one not to really look at patterns per se, more so the price and volume trends to get a sense of the supply and demand.), and I think the selling pressure and price/volume setup could suggest a move to the May '12 lows is a higher probability event. I provide the chart of the GDX below.
I also think that the price/volume action in the GDX suggests that the price of gold is going lower. My research has shown that the price of the gold miner indexes leads the price of gold by a factor of a few weeks to a few months. This is probably due to, in my opinion, stock investors being a more forward looking bunch. The Spider Gold Trust (ticker GLD) has been trading in a sideways pattern since mid December and has traded up into the December 18th downdraft twice, failing both times. I would not rule out another test of this level, but also think the repeated failures at this juncture suggest operators testing the market's supply while seeing if there is any demand for higher prices. The repeated failures in conjunction with the weakness in the GDX leads me to weigh the downside as a more probable outcome..... which would not be a bad thing if you are looking to buy more gold stocks or gold. I know I am sitting on my hands.
I also think that the price/volume action in the GDX suggests that the price of gold is going lower. My research has shown that the price of the gold miner indexes leads the price of gold by a factor of a few weeks to a few months. This is probably due to, in my opinion, stock investors being a more forward looking bunch. The Spider Gold Trust (ticker GLD) has been trading in a sideways pattern since mid December and has traded up into the December 18th downdraft twice, failing both times. I would not rule out another test of this level, but also think the repeated failures at this juncture suggest operators testing the market's supply while seeing if there is any demand for higher prices. The repeated failures in conjunction with the weakness in the GDX leads me to weigh the downside as a more probable outcome..... which would not be a bad thing if you are looking to buy more gold stocks or gold. I know I am sitting on my hands.
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