What a 24 hours coming after the Brexit decision for markets! At one point, gold was up $100/oz, S&P 500 futures were limit down and the British pound was down over 8%! The volatility has subsided, perhaps temporarily and gold settled around $1320/oz with silver settling below key resistance at $18. The miners predictably gapped up but the strength was sold. As miners remain below 2014 resistance, we expect gold to retest $1300/oz before moving higher.

The chart below plots the weekly candlestick charts of GDXJ (top) and GDX. The miners gained 5% to 6% on the week thanks to Brexit, but note that miners sold off today after testing 2014 resistance. GDXJ, which has resistance at $43-$45 reached $43.76 on Friday before declining and GDX, which has resistance at $27-$28, reached $27.71 before declining. 

We should also note that the miners remain stretched when viewed through the lenses of history. Specifically, Brexit pushed the rebound above the 2008-2009 rebound. 

Given the action in the miners on Friday and their historically overbought condition, coupled with gold selling off from much higher levels, I expect gold to retest $1,300/oz this week. A retest is only that and nothing more. While gold has technically not formed a reverse head and shoulders bottom, it nevertheless has a potential measured target of $1,550/oz. There is some resistance at $1,330 and $1,380 to $1,400. However, there is very little resistance from $1,400 to $1,550. 

News events rarely change market trends as the market typically leads news, but Brexit could be an indication of a new bullish development for precious metals. That would be the long-term disintegration of Europe, which would be very negative for the euro, the world’s second largest currency. This news propelled gold through $1,300 and could be the catalyst to take it towards $1,400 over the next few months. Meanwhile, the gold stocks could back and fill just a bit before again testing 2014 resistance levels.