It is “make it or break it” time for the gold sector.
The Gold Bugs Index (HUI) put on a blistering rally in the fourth quarter of 2023. The index gained about 25%. But it has given back much of those gains so far in 2024.
HUI is down 12% from its December high. And, as the sector has fallen, so too have the hopes of gold stock investors.
But there’s still a chance that the uptrend that started in early October is still intact. There’s still a chance the Gold Bugs Index can rally and challenge last year’s high above $280. But, in order for that to happen, the gold sector needs to rally right now.
Take a look at this chart of the HUI…
After bottoming last October near $200, the HUI has made a series of higher highs and higher lows. This action created a “rising channel” pattern on the chart (the dashed blue lines).
The dashed red lines on the chart are obvious resistance areas. HUI challenged the first resistance level in late December. That level lined up almost perfectly with the resistance line of the rising channel pattern. So, it was a logical spot to expect the gold stocks to pull back.
Now, though, HUI is on the verge of breaking below the support line of the rising channel pattern. If this support level fails, then the gold stocks are headed lower. HUI will likely retest the October low.
So, like I wrote earlier, this is a make it or break it time for the gold sector. Gold stocks need to bounce right now in order to keep the uptrend intact.
From a risk/reward perspective, this looks like a good buying opportunity.
If the gold sector breaks down, then we’re risking about $20 on HUI as it drops toward the October low. On the other hand, if the sector can find support right here, then the next rally should target a higher high – near $260. That would line up with the resistance line of the rising channel pattern. And it would match the target price we wrote about last November when the gold stocks first started to rally.
So, there’s $20 of downside risk versus $40 of upside reward.
Gold stocks are notoriously volatile. The sector has a habit of shaking traders out of positions before making big moves higher. Maybe that’s what is happening right now.
Best regards and good trading,
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Jeff Clark
Editor, Market Minute
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Source: Jeff Clark Trader