XAU Faces a Challenging June
In my commentary of May 4 entitled "Finally, the gold stocks get their chance" it was observed that the XAU gold/silver index would "rally in the days ahead with the first nearby test at the 85.00-86.00 pivotal area, and then possibly to the 90.00 level." This mini-rally has been accomplished as of Thursday, June 2. But what of the days ahead?
The XAU index reached the 90.00 benchmark on an intraday basis on Thursday but quickly encountered resistance. This resistance can be seen vividly in the chart below, which shows a "pattern dual" currently underway between a parabolic bowl and dome structure. The bowl, of course, represents the bulls (support) while the dome represents supply (resistance). Let's examine this chart to see which side is likely to prevail in the days ahead.
The first thing we note about this chart is that the XAU came into contact with its underlying bowl back in May (see circled area). Since this first contact with the bowl was after the XAU had passed the mid-point of the parabolic bowl, it increases the likelihood that the bowl will be broken the next time it is tested. Currently the bowl's "rim" intersects the 85.00-86.00 area.
The overhead dome-shaped structure is pushing hard against the XAU and looks like it will prevail over the bowl. This means we can probably expect to see a re-test of the May lows before the month of June is over and possibly a lower low.
Meanwhile, the U.S. dollar index has met temporary resistance at the 88.00 area. The dollar has over-extended from its dominant short-term moving averages and will likely need a few days to correct and consolidate before resuming its climb. The charts suggest the 90.00-91.00 area has being the ultimate target for this rally as the really strong resistance begins here.
The month of June promises to be a challenging one for equities in general, including gold stocks. In many ways, June is shaping up to be by far the most challenging and volatile month of the year-to-date. I maintain that whatever gold stocks can survive June by showing relative strength to the gold group will be strong performers after the next cycle bottoms in July.