Gold Has Soared This Year. It’s Time to Sell Some - According to Barron's

New York  (Aug 30)  Our July 10 article discussed why gold had begun a new bull market. At the time, bullion was trading near $1400. In the May 30 issue of THE INSTITUTIONAL VIEW, when gold was at $1292, we said that gold’s pullback from resistance took a mild and bullish “a-b-c” (down, up, down) form.

Happily, gold rewarded us and climbed to $1555 this week. Nonetheless, now is the time to book profits. We advised our clients to sell half of their positions. Here’s why.

First, bullion’s weekly closing chart (shown below) shows that prices have surged to a strong resistance area. The dashed orange lines are trendline resistance between 1560-1600. Resistance comes from the bottom of the large 18-month top that formed from late-2011 through early-2013.

Second, gold is extremely overbought just as it enters that strong resistance zone. In fact, momentum is even more overbought than it was when gold peaked at $1920 in 2011. While prices can continue climbing in the face of an overbought condition—as it did from 1400 in June—an 18-month top presents a significant barrier of resistance when momentum is extremely overbought.

Third, the precious-metal indexes are bumping into formidable resistance. The VanEck Vectors Gold Miners ETF (GDX) is stalling at powerful six-year trendline resistance between $30 and $31.

Fourth, Fourth, there was a negative divergence between the VanEck Vectors Gold Miners ETF and the VanEck Vectors Junior Gold Miners ETF (GDXJ). While the “majors” registered new highs this week, the “juniors” failed to exceed their early-August high. This negative divergence warns of a top.

Fifth, the U.S. Dollar has been stubbornly strong. The U.S. Dollar index would accelerate higher if it closes above 99. and that would exert downward pressure on GOLD.

For these reasons, we recommend selling half positions now.

Barron's