In an October 2 Barchart article, Does the Selloff in Gold Mark the End of the Bull Market for the Precious Metal, I concluded:
I remain a scale-down buyer, adding to long positions. Since bull markets rarely move in straight lines, corrections can take prices to illogical, irrational, and unreasonable levels. Leave plenty of room to add on further weakness. Buying gold during corrections has been the optimal approach for decades, and I expect that to continue over the coming months and years. The current selloff is another temporary event on the path to higher highs in the rare precious metal.
December COMEX gold futures were trading at $1,848 per ounce on October 2. While the price dropped to a lower level, it took off on the upside after a technical signal on October 6. Meanwhile, the leading senior and junior gold mining shares have lagged the metal over the past weeks, which could be a warning or a golden opportunity.
A bullish key reversal on the daily chart on October
6
The gold futures market’s price action on October 6 was a precursor for a rally.
The chart highlights December COMEX gold futures decline to $1,823.50 on October 6. While gold traded below the prior session’s low, the price reversed and settled above the previous high, putting in a bullish key reversal pattern on the daily chart. Gold established a bottom, and events on the following day caused the price to gap higher on October 9, the next session.
December gold probes over the $2,000 level
The October 7 terrorist attack on Israel and Israel’s declaration of war on Hamas increased the geopolitical temperature and caused gold to rally. The October 6 bullish reversal was a technical factor. Still, the attack and war turbocharged gold’s rally that took the December futures price to $2,019.70 per ounce on October 27, the highest price since May 2023.
While gold briefly probed above the psychological $2,000 level, the price pulled back. However, October’s price action set the stage for another technical signal at the end of the month.
The October close was another more significant technical signal
The bullish reversal on the daily chart pushed gold higher after October 6. The close on October 31 put in an even more significant technical pattern.
The twenty-year COMEX gold futures chart displays a lower low in October 2023 as the continuous contract price fell to $1,809.40, below the September 2023 low of $1,846. Meanwhile, the September 2023 high was $1,950, and the October 31, 2023, close at above the $1,985 level resulted in another bullish key reversal pattern, this time on the monthly chart.
The last monthly bullish key reversal occurred in November 2022 and took gold prices 28.3% higher from $1,615.10 to $2,072 in May 2023. A similar percentage move after the bullish monthly pattern in October 2023 would take nearby gold futures over the $2,300 per ounce level.
Uncertainty favors gold
Fear and uncertainty are bullish for gold as the precious metal has a long history as the ultimate currency and means of exchange. The following factors favor a new high, eclipsing the March 2022 and May 2023 $2,072 highs:
- Wars in Ukraine and the Middle East have made the world a far more dangerous place.
- The bifurcation of the world’s nuclear powers threatens an escalation of the current conflicts.
- The trajectory of Fed interest rate hikes has slowed over the past months. The U.S. bond market declined to the lowest level since 2007. While inflation remains elevated, the geopolitical landscape will likely cause the central bank to pause over the coming months as the economy faces many potential recessionary factors.
- BRICS countries concerned about U.S. sanctions are preparing to issue a BRICS currency with gold backing to replace the dollar for cross-border transactions. A BRICS currency that is not a fiat currency could diminish the U.S. dollar’s dominance as the world’s reserve currency.
- Since 1999, when gold reached a $252.50 per ounce bottom, every downside correction has been a buying opportunity. The bull market in gold remains firmly intact in early November 2023.
Gold rallied 10.8% from the October 6 low to the October 27 high. The leading gold mining ETFs validated the price gains in the precious metal.
Gold mining shares validate the rally
The VanEck Gold Miners ETF product (GDX) owns a portfolio of senior gold mining shares.
The chart shows the 17.7% rally in GDX as the ETF rose from $25.62 to $30.16 per share during the recent gold rally.
The VanEck Junior Gold Miners ETF (GDXJ) owns a portfolio of junior gold mining shares.
The chart illustrates GDXJ’s 17% rise from $30.46 to $35.63 per share.
Gold mining shares tend to outperform gold during rallies and underperform when the gold price corrects to the downside. The outperformance since early October validates gold’s recent rise and could mean the price is heading for a new record peak. If gold rises above the $2,072 level, expect gold mining shares to continue outperforming the metal on a percentage basis.
Over the past weeks, the mining stocks have told us to expect higher highs in the precious metal that is the ultimate hard currency.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
