The SPDR Gold Trust (GLD) has rallied to a six-month high, underpinned by President Trump's critical comments about Federal Reserve Chairman Jerome Powell and the need for higher interest rates. Market players look like they're betting that the attacks will eventually bear fruit and lower the number of 2019 rate increases, perhaps to zero. More importantly, the administration could find a way to undermine the Fed's independence on a long-term basis, upsetting the delicate balance between growth and inflation.
Gold stocks have turned higher as well, lifting the VanEck Vectors Gold Miners ETF (GDX) to a five-month high and into a critical test at the 200-day exponential moving average (EMA). The Market Vectors Junior Gold Miner's ETF (GDXJ) has rallied into the moving average as well, with both funds now grinding sideways while they wait and see if Trump escalates his criticism, or even tries to fire Powell, in the first quarter of 2019. It makes sense to watch these instruments closely in the coming weeks because rallies off those moving averages would set off buying signals.
Given the president's unbridled enthusiasm for pressing politically charged issues for months or years at a time, it might not be too early to add gold exposure into trading or long-term portfolios, looking for the yellow metal to finally break out of the basing pattern it entered after the last downtrend ended in 2015. The sector's narrow leadership looks more profitable than funds for this early exposure, avoiding the perennial laggards embedded within those broad-based instruments.
Kirkland Lake Gold Ltd. (KL) shares broke out above 10-month resistance at $8.50 in June 2017 and entered an uptrend that stalled near $24 in August 2018. The stock pulled back to the 200-day EMA and bounced in September, but the uptick failed a few weeks later, yielding a second moving average test in November. Committed buyers came to the rescue once again, completing a double bottom reversal, ahead of a strong bounce that reached resistance three weeks ago.
The stock broke out immediately, entering a rising channel pattern while hitting an all-time high at $26.47. Despite this positive action, the stock hasn't carved a single support level since the upper teens, predicting at least one reversal and bearish failure before upside momentum takes control. The 50-day EMA, now rising into the October swing high at $22, looks like a low-risk entry zone, ahead of continued upside in 2019.
Barrick Gold Corporation (ABX) stock bounced to a three-year high at $23.47 in July 2016, after a four-year downtrend dumped the stock to a 26-year low in the single digits. A long series of lower highs into September 2018 carved a descending trendline, with resistance now situated around $13.50. The stock bounced into that level in October, mounting the 200-day EMA for the first time since August 2017, and has been testing the trendline for the past two and a half months.
A rally above $14.20 is all that's needed at this point to confirm long-term moving average support and generate a multi-year trendline breakout. That event could offer a low-risk buying signal, but don't expect a rapid advance, because the uptick will need to mount three or four tough resistance levels before reaching a critical test at the 2016 swing high. It's clear that other market players see this developing opportunity because accumulation indicators have now risen to 14-month highs.
The Bottom Line
Gold has entered a quiet uptrend in reaction to President Trump's effort to politicize the Federal Reserve and could break out if threats turn into actions. Leading gold stocks look like the most profitable ways to play this turn of events, with short-term buying signals having the potential to generate healthy long-term returns.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.