What To Expect as Gold Shows Upside Potential

While most commodities had plenty of big swings in 2022, it’s been a different story for gold.

This year, gold had only two major moves…

First, the rally that began in February as inflation skyrocketed and the Ukrainian war broke out. And second, the downtrend that began after gold topped out around mid-April.

This reversal saw the VanEck Gold Miners ETF (GDX) give up all its yearly profits in less than a month. Since then, it’s been a slow and consistent grind lower.

Recently, however, there’ve been some promising signs. So today, we’ll see if GDX can break out of its long-term slide.

Two Clear Trends

On the chart below, the 50-day moving average (MA – blue line) shows GDX’s two major trends in action…

VanEck Gold Miners ETF (GDX) ETF

Source: eSignal

In mid-February, there was a gradual rise after the 10-day MA (red line) bullishly broke above the 50-day MA – and the Relative Strength Index (RSI) broke into the upper half of its band (above green line).

Then, GDX rolled over from April through May and trended lower…

This reversal from GDX’s April 18 high was marked by a few turnabout signals…

1. The RSI formed an inverse ‘V’ out of oversold territory (upper grey dashed line) and reversed sharply. As the RSI fell through support, GDX’s stock price also fell heavily.

2. The RSI and stock price diverged in opposite directions (orange lines).

3. The 10-day MA crossed below the 50-day MA, confirming the downtrend. It has continued to track there for the entirety of this move.

When we last checked GDX on September 13 (red arrow), the RSI was testing resistance…

A break above resistance – with the RSI gaining traction in the upper half of its band – would likely have seen GDX’s long-term downtrend come to an end.

And the 10-day MA breaking above the 50-day MA, could’ve provided the setup for a potential long trade.

However, as you can see, both moves failed to pan out…

VanEck Gold Miners ETF (GDX) ETF

Source: eSignal

But this time, the chart is showing things might be different.

So, what am I looking for around here?

Looking for Confirmation

Recently, the RSI broke through resistance into the upper half of its range (red circle). While it’s still early, so far, the move looks promising.

Earlier this year, the RSI broke through resistance and stayed there. This move underpinned GDX’s rally from February through April.

If the RSI can gain traction – and that resistance level turns into support – the bigger and more prolonged this recent up move could become.

Further confirmation of any longer-term up move, would then require the 10-day MA to break above the 50-day MA. So far, GDX’s stock price has only pierced the 50-day MA.

So, it’s still too early to tell with this move…

If the RSI instead reverses down through support (a false breakout), then any buying in GDX will likely be short lived.

GDX will have further falls if the RSI returns to its lower band, and the 10-day MA continues to track below the 50-day MA.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

Reader Mailbag

In today’s mailbag, we’d like to welcome a new member to One Ticker Trader…

Hello Larry,

I’m a new One Ticker Trader, premium life member as of September 27, 2022. I’ve been going over your materials. On a scale of 1 to 10 – with 10 being the most experienced – I’m probably at least a 7.

So, I’m ready to place all option trades. I’ll continue to read the rest of your reports, and I have your emails set up to go into a particular folder. So that I don’t miss anything when it happens. I look forward to following you and reporting back my results.

– Kent W.

Thank you as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].