It was a volatile week for gold and gold miners, but the Gold Miners ETF (GDX) remains at an interesting juncture that warrants attention. After surging above 47 to start the New Year, the Fed minutes on Wednesday put some doubts on the future of quantitative easing. Keep in mind that the Fed announced its latest quantitative easing program in mid September and suggested then that it would be open ended. Even though the Fed minutes got the blame for this week's plunge back below 46, I am not so sure of this connection because gold and the Gold Miners ETF (GDX) have been moving lower since October, which was just after the Fed announced its latest round of quantitative easing. Gold may be marching to the beat of a different fundamental drummer.
Click this image for a live chart.
Whatever the case, the trends for the Gold Miners ETF (GDX) and the Gold Miners Bullish Percent Index ($BPGDM) are clearly down as GDX fell back to potential support with a sharp decline the last 2-3 days. Note that support is just "potential" because the trend is down. Resistance levels are expected to hold during downtrends and support levels are expected to fold. The 45 area is "interesting" because GDX formed a falling wedge the last few months and is trading in a Fibonacci cluster. Falling wedges are typical for corrections and this Fibonacci cluster could mark a reversal zone. The last two peaks established resistance in the 47.60 area and a break above these peaks is needed to reverse the downtrend. Until such a trend reversal, this downtrend could extend to next support in the 39-40 area. The indicator window shows the Gold Miners Bullish Percent Index trending lower since October as well. A break above 40% is needed to reverse the downtrend in this breadth indicator.
Best wishes for 2013!
Arthur Hill CMT