GOLD STOCKS CONTINUE TO STRENGTHEN -- MORE THAN 50% ARE NOW IN UPTRENDS -- GOLD LEADERS ARE RANDGOLD, IAMGOLD, AND ROYAL GOLD -- NEWMONT MINING HAS BEEN SHOWING NEW RELATIVE STRENGTH OF LATE AND MAY PROVIDE GOOD GOLD VALUE
GOLD STOCKS START TO SHINE AGAIN... My Market Message from Tuesday of last week (October 25) wrote about new signs of strength emerging from an oversold gold-mining group. It showed the Market Vectors Gold Miners ETF (GDX) bouncing off chart support along its 2011 reaction lows (see circles in Figure 1). In today's trading, the GDX has moved back above its 50- and 200-day moving averages for the first time in three months. The GDX/SPX relative strength ratio (below Figure 1) is starting to bounce again as well. The upturn in the ratio took place in early August when the stock market started to weaken. After pulling back during the October stock market rally, the ratio is starting to bounce again. Chart 2 shows a longer version of the GDX/SPX ratio. The rising green trendline shows that the longer-range trend of the ratio is still up. The breaking of the falling trendline drawn over the December/April highs is also a positive sign.
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Chart 1
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Chart 2
GDX BULLISH PERCENT INDEX RISES ABOVE 50%... Last week's message showed the Gold Miners Bullish Percent Index ($BPGDM) bouncing from oversold territory below 20. [The BPGDM measures the percent of stocks that are in point & figure uptrends]. The last time that happened was in the first quarter of 2010 as gold stocks ended a downside correction. Each upturn in the index since then has coincided with a bottom in the mining group (see arrows). And each downturn has taken place from much higher levels (usually near 80%). As of today, the index has risen above 50% which means that more than half of the mining stocks are on p&f buy signals.
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Chart 3
GOLD LEADERS... The three gold stocks shown below are leading the mining group higher. Chart 4 shows Randgold Resources (GOLD) hitting a new record high today. It's the first gold-miner to do that. Chart 5 shows IAMGOLD (IAG) rising above a resistance gap formed in mid-September. That's usually a sign of strength. Chart 6 shows Royal Gold (RGLD) have cleared its 50-day average in decisive fashion. The ratio below Chart 6 measures the strength of RGLD against the GDX. The rising ratio shows new group leadership by the stock (up arrow).
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Chart 4
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Chart 5
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Chart 6
NEWMONT MINING SHOWS RELATIVE STRENGTH... Newmont Mining (NEM) is one of the biggest stocks in the GDX and deserves special mention. The daily bars in Chart 7 show the stock having held above its April peak around 60 (while the group as a whole retested its 2011 lows). That stronger performance is reflected better in the NEM:GDX ratio (above chart) which has been rising since the spring and jumped during September. The monthly bars in Chart 8 also show the 2011 pullback bouncing off a support line drawn over its 2006/2008 peaks. That resistance line was exceeded early in 2010. [Broken resistance lines usually become new support lines (see arrows)]. The upswing in the stock's recent relative strength ratio is interesting because Newmont has been a relative laggard in the mining group over the last decade. The Newmont/GDX ratio in Chart 9 shows how badly Newmont has done relative to the group as a whole. The good news is that ratio is in the process of testing a ten-year down trendline. It may just be that it's long period of underperformance is ending. Partly for that reason and partly because of its larger size, Newmont might be a suitable choice for more conservative investors looking to buy a gold-miner.
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Chart 7
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Chart 8
