• 22 hours Is A Global Currency Necessary?
  • 2 days America Has Shed 500,000 Millionaires Since The Coronavirus Lockdown Began
  • 2 days Trump Wants Another $2 Trillion Economic Intervention
  • 3 days The Surprising Businesses Deemed “Essential” During The Coronavirus Lockdown
  • 3 days Priceless Van Gogh "Spring Garden" Painting Stolen
  • 3 days Oil Falls To $20 For First Time In Nearly Two Decades
  • 3 days COVID-19 Could Be The End Of U.S. Coal
  • 4 days How Much Does Your Social Security Number Cost? $4 On The Dark Web
  • 5 days Silver Stocks Have Been Decimated In The Coronavirus Sell-Off
  • 6 days How Blockchain Tech Could Make Mergers And Acquisitions More Efficient
  • 6 days America’s Shortage Of This Metal Keeps Trump Up At Night
  • 7 days Bidet Bonanza: Defying The Toilet Paper Shortage
  • 7 days U.S. Auto Sales Fall By 75%
  • 8 days Violating Quarantine? Big Brother Is Watching
  • 8 days Does Gold Still Have Some Room To Run?
  • 8 days Major Acquisition Gives The World’s First Green Ride-Share Another Edge
  • 9 days U.S. Pushes For Digital Currency For Immediate Stimulus
  • 9 days The Impossible Challenges Created By Growing Population
  • 9 days Gold Skyrockets After Fed Pledges "Unlimited" Cash To Boost Economy
  • 10 days World’s Richest Lose $1 Trillion In Stock Market Rout
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

  1. Home
  2. Markets
  3. Other

Relative Strength in Gold Stocks Portends to Rebound

A few weeks ago we warned that the gold miners were at risk of a technical breakdown. They struggled to rebound at support while Gold was breaking to a new low. Gold continued to decline but the miners held support and stabilized. Gold traded as low as $1045 on Thursday but the miners continued to diverge in a positive fashion. The recent relative strength from the gold miners particularly in the face of new lows in Gold, coupled with the oversold condition of the metals suggests a sector rebound is developing.

The daily candle charts of GDXJ, GDX and Gold are shown in the image below. Several weeks ago Gold lost $1080 support and made a new low. The miners failed to make a new low then and continued to hold their lows as Gold grinded lower below $1080/oz. Now the miners could reach a one month high very soon while Gold could rally back to resistance at $1100/oz or slightly higher.

Market Vectors Gold Miners, Market Vectors Junior Gold Miners and Gold Daily Charts

Before we continue with the miners let us comment on Gold's outlook. Following the breakdown from the bearish flag formation Gold traded down to $1045/oz. We would anticipate Gold enjoying a bigger rebound if it first tested major support at $970/oz to $1000/oz. If Gold is beginning a rally from $1045 then it could be limited due to overhead resistance at $1100/oz to $1110/oz.

Monthly Gold Chart

Another reason to doubt an extended rebound in Gold is its recent breakdown against foreign currencies. We plot Gold against foreign currencies (FC) and Gold in the image below. Gold/FC has been rallying for almost two years and had held above the 400-day moving average since last December. However, Gold/FC lost the 400-dma in November and continued to decline. This tells us that Gold's recent weakness is broad based and not only a symptom of US$ strength.

Gold:UDN Daily Chart

Turning back to the miners, if they continue to outperform Gold and Gold rebounds +$50/oz then they could rally to the 200-day moving averages. The daily charts of GDXJ and GDX are shown in the image below. GDX and GDXJ need to rally 19% and 15% respectively to reach their 200-day moving averages.

Market Vectors Gold Miners and Market Vectors Junior Gold Miners Daily Charts

The fact that the gold miners held their lows even as Gold broke to new lows is bullish and hints that a short term rally is underway or could begin soon. Moving forward, we think the miners to metals relationship could be a leading indicator for the sector. Recall that the miners during the major bottom in precious metals in 2000-2001 bottomed several months before Gold. While we expect another leg lower in the metals and another push higher in the US$ index, we would not be surprised if the extremely oversold mining sector continued to diverge.

 


As we navigate the end of this bear market, consider learning more about our premium service including our favorite junior miners which we expect to outperform into 2016.

 

Back to homepage

Leave a comment

Leave a comment