The bottom in gold at $1080 just got a little firmer as the yellow metal broke through resistance at $1,170 today, trading nearly $20 higher on the day. Silver (NYSEARCA:SLV) broke through its own long term resistance as well, with precious metals stocks all showing signs of pulling away.
The junior miners (NYSEARCA:GDXJ) especially had enormous gains of 7.5% with the majors (NYSEARCA:GDX) rising “only” 6.5% by comparison. When juniors outpace majors on up days, this is also a good sign as junior mining companies are the marginal producers and therefore naturally the highest leveraged against gold. When majors outpace the juniors it can be a sign of an impending reversal. That did not happen today.
Pullbacks are common after days like this, so a strong down day tomorrow for gold stocks of up to 5% is not out of the question. If this is a new bull market though, some of today’s gains should be kept tomorrow even if there is a pullback.
International developments may be impacting moves to safety at this point, as bond funds also showed considerable strength today. The fact that Russia has sent its only aircraft carrier to Syria may be raising international jitters and causing gold prices to rise faster than they normally would have. An outbreak of war involving Russia would certainly put technical analysis to rest and cause investors to pour money into all safety assets.
Today marked another major achievement for the Gold Bugs Index (^HUI). The current rally off lows of 101.28 is now the largest rally by percentage (37%) since the gold bear market began in September 2011. So it is either the largest bear market rally in over four years, or it is the beginning of a new bull market.
Meanwhile, stocks did not follow gold higher today as the S&P 500 (NYSEARCA:SPY) closed down a half percent. Stocks were pulled down especially by retailers after Wal-Mart Stores, Inc. (NYSE:WMT) brought down the retail sector after collapsing 10%. Costco (NYSE:COST) and Target (NYSE:TGT) both traded down substantially, taking their cue from their larger competitor.
Barring any news of a conflict between the United States and Russia tomorrow, traders can expect a pullback in gold considering the advances made today. In order to keep a healthy wall of worry intact and prevent market crowding, gold will need something of a retreat from today’s gains to keep from attracting too much attention by emotional traders looking for a quick buck.
Disclosure: At the time of writing, the author was long precious metals stocks.