Some market observers will make a big deal of gold’s monthly candlestick for April, deeming it to be a bearish omen. However, the reality is that one candlestick (even if it does represent an entire month of price action) never provides enough information from which one can discern a valuable signal.
Gold (Monthly)
April’s candlestick has a long upper wick and represents an inverted hammer. A traditional hammer candlestick formed at the bottom of a downtrend is considered to be a bullish candlestick. Likewise, an “inverted hammer” candlestick formed at the top of an uptrend offers a bearish connotation.
Even if gold did reject the $2,400 level in April, we should note that gold traded higher for the month and made a new monthly closing high above $2,300/oz. Consecutive new all-time high monthly closes is not characteristic of a bear market. In fact, quite the opposite.
Until we receive more information (in the form of another several weeks of price action), I prefer to keep it simple by making the following observations:
So far the market has rejected the $2,400 level with clear evidence that sellers outnumber buyers above this level.
The $2,300 level has NOT been rejected. In fact, gold has completed 5 consecutive weekly closes above this level.
Gold became extremely overbought and overextended at $2,448 three weeks ago. Since then, it has cooled off considerably and I no longer consider it to be overbought on daily/weekly/monthly time frames.
Commitments of Traders (CoT) data supports the idea that gold could be in for a deeper correction/consolidation over the next few weeks.
May is historically a messy month for gold and seasonal strength doesn’t begin to assert itself until mid-July.
Based on the above I remain in the neutral camp in the near term. However, longer term we have a number of bullish patterns forming in the gold miner charts:
GDX (Monthly)
When GDX does eventually decisively break-out above the $36 resistance level it will target a move that will far surpass the August 2020 high. Intuitively, it makes sense to me that such a powerful rally will begin later this summer. For the time being, gold investors will do best by exercising patience while continuing to position themselves to benefit from the next leg (most powerful one) of the bull market.
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, corporate presentations and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This video is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.