Here's Why You Must Watch Gold Miners on "Fed Day"

Posted On Jun 15, 2016 By Greg Guenthner

If you’re looking for a new way to invest in gold, you should consider flying to Japan to take advantage of the country’s latest fast food promotion.

McDonalds franchises aren’t faring well in Japan. So in an effort to gin up some business, the world’s biggest burger chain is resorting to some rather unique offers…

“In April, the fast food giant created a big mac with three times the amount of meat,” Quartz reports. “Now, the company has launched a Willy Wonka-style competition, in which a lucky customer can win an 18-karat gold chicken McNugget valued at $1,500.”

Just don’t accidentally try to eat the thing…

Of course, you don’t actually have to fly to Japan and enter some wacky contest to play gold’s rise. Playing gold mining stocks is easier—and more profitable. Today, we’re going to take a look at how the sector is setting up. And you’ll see when you should look to get in for a fresh trade to ride the next leg higher.

While stocks have chopped back and forth, gold miners are having a banner year. The Market Vectors Gold Miner ETF (NYSE:GDX) is up a staggering 85% year-to-date. Yes, the gold miners could be overextended at this point. But for a downright difficult year for stocks they’ve offered plenty of trading opportunities.

Glittering Gains

But here’s the thing…

No one’s paying attention to gold anymore.

Everyone’s mesmerized by the Brexit vote, the Fed and some renewed volatility in stocks over the past week. Absolutely no one is watching gold. And that’s a big mistake…

To be fair, gold trading started to get difficult last month. In late April, we alerted you to a breakdown in the dollar that had the potential to propel gold to new highs. Not only did this dollar slump fuel the gold rally—it also slammed the U.S. Dollar Index back toward early 2015 levels. Slipping below its 2015 lows meant the risk of a much bigger drawdown for the Greenback.

But the dollar wasn’t finished screwing with our plans. After feigning a breakdown move, the buck stormed back. An oversold bounce turned into a May rally that tossed a bucket of cold water on gold’s run up.

Of course, gold’s weakness in May was all thanks to the dollar’s freak move back from the brink of destruction. And it perfectly illustrates one of the reasons the market has been so difficult to trade this year. Any definitive move has sharply reversed. Now, the dollar looks like it’s running into trouble again ahead of the Fed’s rate decision this afternoon. That shouldn’t shock anyone. The chances of a rate hike today are slim to none…

That’s why our attention is drawn to the miners this week. These stocks have taken a hit this week. GDX has fallen back below its late April highs and is losing momentum. And we think that’s setting it up for a potentially powerful trade…

GDX

I’m looking for a bounce somewhere between $24-$25 as GDX blows off some steam here. That should give us a solid entry to ride the next leg of this rally.

With precious metals quietly pulling back again this morning, I suspect we will see a hot new trade emerge very soon. Remember, mining stocks held up well when gold futures dropped almost $100 a few weeks ago. If they can ride out a few more bumps, another powerful leg higher could materialize.

Action to Take

Buy Today:

Nothing to buy today…

Sell Today:

Nothing to sell today…

Open Positions:

  • PulteGroup (NYSE:PHM), 6/10: PHM continues its retreat…
  • Lululemon Athletica (NASDAQ:LULU), 6/9: LULU is off to a hot start…
  • Helix Energy Solutions (NYSE:HLX), 6/8: HLX needs to bounce here…
  • Kraft Heinz Co. (NYSE:KHC), 5/6: KHC looks solid…
  • Silver Wheaton Corp. (NYSE:SLW), 4/20: SLW takes a hit…
  • Amazon.com (NASDAQ:AMZN), 4/12: AMZN bounces…
  • Imperva Inc. (NYSE:IMPV), trade of the year, 1/7: IMPV has work to do…
  • First Solar Inc. (NASDAQ:FSLR), trade of the year, 12/2, 1/6, 2/25, 3/9: FSLR might have found a floor…
  • United States Natural Gas Fund (NYSE:UNG), trade of the year, 1/5, 6/3: UNG breaks out

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