GOLD HITS RECORD HIGH -- SILVER IS VERY CLOSE TO DOING THE SAME -- GOLD MINERS ETF BREAKS OUT -- SILVER STOCKS PLAY CATCHUP -- SEVERAL GOLD STOCKS STILL PRESENT VALUE -- RISING SILVER/GOLD RATIO IS GOOD FOR STOCK MARKET
PRECIOUS METAL BREAKOUTS ... I've devoted the last two Tuesday's to bullish articles on precious metals. This Tuesday is no exception. That's because precious metal assets are surging through important resistance barriers today to achieve bullish breakouts. Chart 1 shows the Gold Trust Shares (GLD) breaking through its June high to a new record. Chart 2 shows Silver iShares (SLV) having broken through its spring high to reach the highest level in nearly three years. Precious metal shares are the day's strongest market group and are having a bullish chart day. Chart 3 shows the Market Vectors Gold Miners ETF (GDX) hitting new 2010 highs as well. Like silver, the GDX is nearing a test of its early 2008 high (not shown here). As would be expected, several gold stocks are achieving bullish breakouts of their own. Newmont Mining, which I featured last week, has reached a new record high. Silver stocks are rising as well.
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Chart 1
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Chart 2
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Chart 3
SILVER STOCKS PLAY CATCHUP ... Last week's message showed several silver stocks that were playing catchup to gold shares. [I didn't include Silver Wheaton which had already reached a new record]. The three silver stocks that I showed last week are acting very well. The two strongest chart patterns belong to Coeur D Alene Mines and Pan American Silver Corp. Chart 4 shows CDE nearing a test of its May high, while Chart 5 shows PAAS nearing a 52-week high. Both stocks are well below their all-time highs but, in my opinion, may represent some of the best value in the precious metal group. They're also benefiting from the fact that the price of silver is rising faster than bullion.
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Chart 4
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Chart 5
GOLD STOCKS THAT STILL LOOK CHEAP... There are several gold stocks that are at or near record highs (including Barrick, Eldorado, Newmont, Randgold, and IAM GOLD). There are others, however, that are well off their old highs but achieving bullish breakouts just the same. The three shown below may present better value in the gold group. I'm showing them in order of relative strength. Charts 6 and 7 show Anglogold and Gold Fields at or very close to 52-week highs. Their relative strength lines (below charts) are rising versus the S&P 500. Chart 8 shows Harmony Gold Mining having just broken a three-year down trendline. Its RS line is starting to turn up as well.
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Chart 6
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Chart 7
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Chart 8
SILVER OUTPACING GOLD MAY BE GOOD FOR STOCK MARKET ... I used the SLV:GLD ratio last Tuesday to demonstrate that silver prices were now rising faster than gold. There are several implication from that rising ratio shown in Chart 9. The first is that silver may be a stronger bet than gold at this point. A second is that silver stocks may present better value than most gold stocks. A third (but more tenative) implication is that a rising SLV:GLD ratio may be hinting at a stronger stock market. If you compare the SLV:GLD ratio to the S&P 500 (below Chart 9), you'll see that both have been trending in the same direction over the last two years. And both are now starting to rise together. Let's take a closer look at their relationship.
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Chart 9
COMPARISON OF SILVER:GOLD RATIO TO STOCKS ... Chart 10 compares the SLV:GLD ratio (silver line) to the S&P 500 (green line) over the last decade. Notice the similarity. Both peaked in 2000, bottomed during 2003, peaked again in 2007, and bottomed during 2009. Both are now rising. The reason for that correlation is based, in my opinion, on the fact that silver is both a precious and an industrial commodity. As such, silver tends to do better than gold when the stock market is rising (since it suggests demand for industrial commodities). When stocks (and the economy) are weakening, gold does better than silver. Hence, my belief that the recent outperformance by silver over gold is a positive sign for the stock market (and industrial commodities in general).
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Chart 10
RETAILERS LEAD S&P CLOSE TO BULLISH BREAKOUT... We've been noting the recent signs of new leadership coming from economically-sensitive stock groups like basic materials, financials, small caps, and technology. We've also mentioned leadership in consumer discretionary stocks and retailers in particular. Right on cue, retailers reported strong August numbers (for the second month in a row) and are helping lead the market higher today. Chart 11 shows the S&P Retail SPDRS trading at a three-month high today. Note the upturn in its relative strengh ratio (below chart). That's a good sign for the the stock market. Chart 12 shows the S&P 500 having cleared its 200-day average and nearing a test of its August high. A close above that level would also break the "neckline" drawn across the summer highs and complete a bullish "head and shoulders" bottom.
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Chart 11
