Reversal in Gold Mining ETFs Could be Bullish Indicator
Last Wednesday, gold futures hammered out a swing bottom at $1,532. In fact, the precious metal had found support in this area a couple of previous times in May. After putting in this low, gold has been moving aggressively higher and some interesting price action last Friday could be suggesting that prices are going to continue to surge. On that day, gold futures soared around 4% while the Dow fell nearly 300 points. This may be suggesting that investors are shifting their perception of gold once again and are looking at it as a safe-haven asset.
Prior to the recent sell-off in risky assets and the corresponding pop in the VIX, gold was trading like most other risk assets and was highly correlated to the S&P 500 and the EUR/USD. The strange price action on Friday seemed to be suggesting that gold may de-couple from other risk assets and benefit from safe-haven flows, similar to what happened in July and August of last year. During Monday's trading session, gold futures are holding the flat-line, just above $1,620.
Gold miners, however, are seeing bullish price action as the broader market has turned around in afternoon trade. Both the Market Vectors ETF Trust (NYSE: GDX) and the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) are now trading in positive territory after reversing earlier losses. Both are also sitting at 5-day highs with the GDX trading at its best levels in over a month.
Given the interesting activity in the gold market, these two securities could potentially be poised to climb this week. If gold can get back into its former sweet-spot, where it went up on risk aversion as well as bullish economic sentiment, big profits could be ahead in both gold futures as well as the mining ETFs.
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