GOLD TAKES A HIT AS DOLLAR DROPS -- GOLD STOCKS BACK OFF FROM OLD HIGHS -- SHORT-TERM TREND HAS WEAKENED FOR PRECIOUS METAL ASSETS
GOLD AND SILVER BREAK 50-DAY LINES... Gold and silver prices took a hit today for the first time in awhile. So did precious metal stocks. Chart 1 and 2 show the Gold ETF (GLD) and Silver (SLV) falling an average of 4% today on very heavy volume. Both commodity ETFs also broke their 50-day lines. Chart 1 shows the 14-day RSI for GLD falling below the 50 level for the first time in three months. That's obviously not good chart action. Part of the reason for selling precious metals may have been a similar breakdown in the U.S. Dollar (and a sharp rally in the Euro). Chart 3 shows the Dollar ETF (UUP) falling below its 50-day line for the first time since April (on rising volume). Since the dollar and gold have been rising together, it makes sense that they would correct together as well. Not surprisingly, gold stocks also had a bad chart day.
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Chart 1
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Chart 2
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Chart 3
GOLD MINERS ETF BACKS OFF FROM OLD HIGHS... The chart action in the Market Vectors Gold Miners ETF (GDX) was also bad, but makes a bit more sense. Chart 3 shows the GDX backing off earlier this week from chart resistance along its May and December highs. That's a logical spot to expect some profit-taking. The falling RSI line (top of chart) also shows loss of upside momentum. The rising relative strength ratio (below chart) shows that gold stocks have been market leaders since the end of March (in fact, they've been the market's strongest group). Today they were the weakest. Several reasons were put forward in the media to explain today's heavy selling in precious metal assets. The most convincing I heard was that traders needed to take some profits in order to meet margin calls in other losing assets. The bottom line is that the reasons don't matter. While the major uptrend is still intact for precious metals, their short-term trend has suffered technical damage.
