From the rapid rise in early 2016 to the quick decline at the end of 2016, gold has had a tumultuous period and is currently trading near the middle of those highs and lows. That makes the long-term outlook uncertain, as there are arguments on both sides for a strong rally or strong decline. In the short-term, though, gold is rallying after bouncing off a trendline, and the gold miners are also moving higher toward a triangle breakout point. The miners have been weak, but increasing strength would signal a likely further rally in gold (and the miners). If the miners can't break higher, that doesn't bode well for the gold industry, and a longer-term decline could be forthcoming.
The SPDR Gold Shares (GLD) bounced off a multi-month trendline in early May. The price has been channeling higher since January, and the May 17 close of $119.79 puts the price near the middle of that rising channel. In the short-term, the price is expected to continue toward the top of the channel between $123 and $124. Above that, $124.50 is a likely resistance area. This region was support from July to September and resistance in November. There could a lot of overhanging supply in that region, which means the price could spend a fair bit of time in that area before moving higher...if the price can get up there. A decline back below $116, and especially $114, strips the bullish bias and indicates the price could drop to $110 or below.
The Vaneck Vectors Gold Miners ETF (GDX) is near a critical juncture and may foreshadow what will happen with gold prices over the next several months. The Gold Miners ETFs typically outperforms gold when gold is in a strong uptrend. When GDX is weak, typically gold prices are weak. If gold is to make a bigger push to the upside, GDX will likely need to break out of its three-month triangle pattern. The top of the triangle is $24.35, so a strong closing price above that would signal the breakout. If that breakout occurs, the target is $29. The $28 to $29 region is also resistance (and former support) since last July. On the other hand, if GDX fails to break higher and instead drops below $21, that doesn't bode well for gold or the miners. A drop below $21 provides a target of $16.40 (height of the triangle subtracted from the breakout point).
The Bottom Line
Watch GDX for clues on what gold will do. Of course, an upside breakout in GDX could reverse or be a false breakout, but GDX does need to confirm if gold is going to stage a more substantial rally. If GDX starts declining again, having already been weak, that doesn't bode well for the gold sector. A breakout below the triangle in GDX, or a drop below the channel in GLD, signals another significant move lower (GDX would likely break to the downside first). Currently, GDX and gold both have room to run higher in the short-term, and a breakout in GDX would fuel a further, longer-term, rally.
Disclosure: The author doesn't own any of the ETFs mentioned.