Gold and gold miners may have entered into a long and dull period while the world awaits the impact of Trump administration policies on growth, inflation, and global stability. Look no further than the weekly charts for clues, which show the yellow metal firmly embedded within the confines of the relatively narrow trading range after failing to break out above long-term resistance in the middle of last year.
Gold miners have drawn more dynamic price patterns than the gold futures contract in the last few years but have also entered a relatively quiet period that could last into 2018 and beyond. Historically speaking, this type of price action is standard for the precious metals group, which can go dead as doornails for several decades at a time. As an example, gold held a 250-point range for more than 20 years, ahead of the powerful uptrend that erupted in the last decade.
SPDR Gold Shares (GLD) came to life in 2005 in the low-40s and entered an immediate uptrend in synch with the rising commodity contract. The rally stalled at $100 during the 2008 economic collapse and continued one year later, with the fund breaking out into triple digits, ahead of continued upside into the 2011 all-time high at $185.85. Price action then eased into a descending triangle top with support at $150, ahead of a 2013 breakdown.
The subsequent decline eased after bouncing at $115 in the second half of 2013, giving way to a consolidation that broke in November 2015, triggering the final phase of the multi-year downtrend. It posted a 2015 range between the January high at $126 and December low at $100 (blue lines) and bounced into a test at range resistance in the summer of 2016. A breakout failed to attract buying interest, triggering a decline that coincided with a failure at the 200-week EMA.
It sold off through the range midpoint into year’s end, further compressing price action, and bounced in the first quarter of 2017. That buying impulse yielded a second reversal at the 200-week EMA that, when taken in context with the 2013 to 2015 selling wave, looks like the next leg of a complex basing pattern that’s now entered its fourth year of construction (green lines). This doesn’t bode well for long-term positions on the long or short sides.
Vaneck Vectors Gold Miners ETF (GDX) came public in the mid-30s one year after the gold fund and topped out at $56.87 in 2008, ahead of a plunge into the mid-teens. It took almost two years to complete a round trip into the prior high, ahead of a 2010 breakout that ended less than one year later at $66.98. A complex topping pattern broke down in 2012, triggering a downtrend that accelerated to lower ground in 2013.
Selling pressure paused through most of 2014 and continued at year’s end, carving the final leg of the long-term decline. The fund bottomed out at $12.40 in January 2016 while the subsequent bounce reversed in August within the April 2013 gap between $30.50 and $32 (blue lines). It then sold off to the midpoint of the 2016 bounce, confirming resistance at the 200-week EMA, and found buying interest at year’s end. Unfortunately, the first quarter rally reversed once again at moving average resistance, raising odds for further price compression as we head through 2017.
The fund is grinding through a multiyear basing pattern, just like the underling commodity, with the failure to mount resistance at the 200-week EMA signaling rangebound action that may confine price to the 13-point trading range posted in the second half of 2016. Meanwhile, base development going back to 2013 looks incomplete, suggesting it could take another one to three years before ejecting into a larger scale uptrend or downtrend.
The Bottom Line
2016 reversals at long-term moving average resistance tell us that gold and gold miners have entered trading ranges that could last into the end of the decade, denying profits to long-term long and short plays. Day and swing traders should have plenty opportunities during this dull period, but ideological positions may suffer from a lack of emotional price movement.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>