• 1 hour Generation Rent Is Running Out Of Options
  • 17 hours These Millionaires Are Looking To Close The Income Gap
  • 21 hours Huawei Given The Green Light To Build 5G Network In The UK
  • 23 hours Five Things To Watch In The Battery Metals Market
  • 1 day What Investors Need To Know About The Coronavirus
  • 2 days General Motors To Spend $2.2 Billion On Detroit Electric Vehicle Plant
  • 2 days Copper Slides Under Coronavirus Concerns
  • 2 days Low Gold Miner Valuations Reveal Upside Potential For The Industry
  • 2 days JPMorgan Urges Investors To Buy The Coronavirus Dip
  • 2 days The Survival Of A $2.7 Trillion Market Rests On This Tiny Niche
  • 3 days U.S. Moves To Bar Iranians From Investor Visas
  • 4 days Why Germany Is Going To War With Gold
  • 5 days Gold Is Still Cheap Compared To Stocks
  • 6 days Are Cryptocurrencies Funding Terrorism?
  • 6 days Promising Oil Companies To Watch In 2020
  • 7 days Could China's Coronavirus Outbreak Impact U.S. Stocks?
  • 7 days Tesla Stock Continues To Soar
  • 8 days What New Economic Data Reveals About Gold's Trajectory
  • 9 days The Lucrative New Tech Hijacking Your Privacy
  • 9 days The Biggest Loser In The China-U.S. Tariff Tit-For-Tat
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

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

Underperformance in Gold Stocks Argues for Interim Peak

The early stages of Gold bull markets (this one included) are characterized by strong outperformance from the miners. They will lead the metals and turning points and register strong outperformance. We saw that in the early 2000s, late 2008 to early 2009 and we have seen it again over the past year. During the recent rebound, the miners rallied back to the "Trump" resistance while Gold is not yet close to doing so. However, unfortunately for bulls, while Gold is now pushing higher above key levels, the gold stocks are lagging. This new and recent underperformance suggests the gold stocks have made an interim peak and will remain entrenched in a correction or consolidation.

In the daily bar chart below we plot Gold, GDX and GDXJ. Gold closed the week up 1.6% and through resistance at $1250/oz while both GDX and GDXJ closed down over 2.5%. That is a strong negative divergence. Gold also eclipsed its early February high while miners did not. Do note that the miners already reached their early November peak (GDXJ exceeded it) while Gold remains some $40/oz below that peak. Buying in the miners reached an exhaustion point.

Gold, VanEck Vectors Gold Miners ETF and VanEck Junior Gold Miners ETF Daily Charts

So if the gold stocks are correcting, how much downside potential is there? Upon first glance, we see 8% downside for GDX and 10% to 12% downside for GDXJ and TheDailyGold junior index. Note that the miners have already corrected roughly 6% to 9%. Keep an eye on GDX $22 because it is a confluence of strong support. It includes the 400-day exponential moving average which has provided support during many bull market corrections. The same can be said for the 350-day exponential moving average for TheDailyGold junior index. The secondary downside target for GDX and GDXJ would be the 400-day moving averages which are currently at $20 and $30 and rising.

TDG Junior Index, VanEck Vectors Gold Miners ETF and VanEck Vectors Junior Gold Miners ETF Daily Charts

After a roughly 40% to 50% rebound in only two months it should be no surprise that the mining sector has begun to soften around important resistance. Therefore, the recent underperformance in the shares relative to the metals (Silver included) rather than a surprise is confirmation that a correction in the shares has begun. We expect the metals to follow suit soon enough. Investors and traders are advised to accumulate their favorite names as the mining sector nears our downside targets.

 


For professional guidance in riding this new bull market, consider learning more about our premium service including our current favorite junior miners.

 

Back to homepage

Leave a comment

Leave a comment