Jordan Roy-Byrne, Founder and Editor of The Daily Gold, joins us to discuss whether this recent move higher in gold above the downward sloping trendline of lower highs, would be considered a breakout at this point. He doesn’t feel it would qualify because a true breakout is more above having pricing close above key horizontal pricing resistance levels, and a weekly and monthly close above $1900 is still the line in the sand to watch. Jordan points out that gold is still down below the 50% retracement level in gold around $1875 and that a true break out will be a sustained move above $1900 on a closing basis. However, Jordan is very encouraged by the move in gold versus foreign currencies, and that gold has improved versus the general US equities markets.
When asked if he is still expecting the corrective move down prior to the rate hikes, he now feels that is very unlikely with gold rallying and only 4 weeks left before Fed starts it’s tightening cycle. However, if the Fed hikes to aggressively, causing a recession or market correction, then that could still be a risk in the precious metals sector as well.
Next we take a look at the price levels Jordan is watching in the gold mining stocks, which are also quite instructive as GDX has bounced back from the $29 level several times in a row, with a recent double bottom there, and is heading up towards resistance at the 400 day moving average and the $34 level price resistance. GDXJ has also bounced off support a few times and is now heading up towards overhead resistance at $47-$48 .
When noting the lagging performance of the gold mining stocks relative to the underlying metals prices, Jordan outlined that the margin contraction in the producers from higher inflation and cost inputs, paired with a lower gold price than were it was trading in the summer of 2020, has kept the producers from breaking higher, and kept the moves in developers muted as their project economics have contracted. The only path higher in the miners that Jordan sees as likely, with such a slow moving business cycle, is for the gold price to break out above $1900 and for inflation metrics to moderate, which would get margin expansion going back higher again.
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