What correction? After seven days of consolidation, gold jumped $10.70 Thursday to close at $756.70, just one dollar above its previous all-time high of $755.70, set on Oct. 1. Intraday, the metal had been up as much as $13.30.The narrow margin by which the price made a new high requires that we see evidence of follow-through before concluding that we are off to the races. MACD has yet to make a bullish crossover, nor has RSI broken the 70 ceiling.
So far, gold hasn't retraced as much as 38% (a common Fibonacci fraction) of its dramatic rise since mid-August. In the face of strong, sustained buying pressure, pullbacks do occasionally reverse at the less common 23.6% retracement mark, in this case about $731. Strong support did, indeed emerge around $730, which, not coincidentally, is the level of May 2006's important high.
On the weekly chart, RSI is still hovering around 70, while the MACD histogram continues to rise.
GDX heralded the bullish action in gold by breaking out of its three-week trading range Wednesday. However, Thursday's action in the gold-mining ETF was hardly bullish. GDX gapped up and soared all the way to $48.51 before plummeting to close at $46.80, up just 12 cents on volume that was the highest since Aug. 16.In the process, it left an ugly candlestick on the daily chart similar to what is known as a "shooting star," a narrow body with a long uptail. This formation is very bearish if confirmed by a decline the next day.
GDX's consolidation also found support near the 23.6% Fibonacci retracement, in this case around $42.84.
GDX has now made a marginal new high, 35 cents above May 2006's all-time high of $46.45.
Meanwhile, the U.S. dollar index has fallen three days in a row, but not yet to a new low. Its recent bounce was turned back near the level of the 23.6% retracement of its decline from the August high of 82.13. As noted on Tuesday, such a shallow retracement, if it stands, would be a sign of profound weakness, the counterpart to the robust strength in gold.
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