GOLD IS STARTING TO GAIN SOME UPSIDE ATTENTION -- SO ARE GOLD MINERS -- THAT MAY REFLECT EXPECTATIONS FOR A MORE DOVISH FED, A WEAKER DOLLAR, AND LOWER INTEREST RATES -- WEAKER GLOBAL STOCKS ALSO MAKE GOLD ASSETS A MORE ATTRACTIVE ALTERNATIVE

GOLD ETFS ARE IN RALLY MODE ... Today is Fed day which could have an impact on several markets. The Fed isn't expected to raise its short-term rate today. But what it says after the meeting could have an impact. Two things are being watched very closely. The first is whether it plans to continue hiking rates this year, or puts things on pause. Stocks would prefer the latter. The second factor concerns recent reports that the Fed may be nearing the end of reducing its bond portfolio. That would reduce some downside pressure on Treasury bond prices and lower the odds for higher bond yields. I assume stock investors would like that as well since it would be another step toward looser Fed policy. So might holders of Treasury bonds. One casualty could be the U.S dollar which has been on the defensive of late. That's because a more dovish Fed could be negative for the greenback. One other market that could stand to benefit from a more dovish Fed is gold. And judging from recent market action, some investors are already anticipating that.

Chart 1 shows the Gold Shares SPDR (GLD) rising this week to the highest level since June. The GLD has moved well above its (red) 200-day moving average, as has its (blue) 50-day average. That's a bullish sign for the yellow metal. Gold miners are also in rally mode. Chart 2 shows the VanEck Vectors Gold Miners ETF (GDX) climbing this week to the highest level in six months. The GDX has also climbed above its 200-day average. There may be another reason for that in addition to lower interest rates and a weaker dollar. Gold assets usually start to attract attention when an aging bull market in stocks shows signs of peaking. That makes three possible reasons why investors are looking to gold and miners as a possible alternative. Both of their longer-range patterns also suggest that gold assets may be in the latter stages of a major bottoming formation.

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Chart 1

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Chart 2

GOLD APPEARS TO BE LATE STAGES OF BOTTOM FORMATION... The weekly bars in Chart 3 compare the price of gold (brown bars) to the U.S. Dollar Index (green bars) over the last eight years. The chart clearly shows that gold and the dollar usually trend in opposite directions. The 2011 dollar bottom coincided with a major peak in gold the same year (see arrows). Gold hit bottom at the start of 2016 as the dollar weakened. The dollar peak at the start of 2017, however, gave an added boost to gold prices (see arrows). The last two arrows show this year's pullback in the dollar giving another boost to gold. The green bars suggest that the dollar may have peaked two years ago. The brown bars suggest that gold bottomed three years ago, and may be heading up for another test of the "neckline" drawn over its 2014, 2016, and 2018 highs. A gold price above that neckline (or the early 2018 peak at $1369) would be a bullish sign for gold. That would also be a good sign for gold miners.

Chart 3

GOLD MINERS MAY ALSO BE BOTTOMING... The weekly bars in Chart 4 show the the VanEck Vectors GoldMiners ETF (GDX) also in a potential bottoming formation. The GDX bottomed at the start of 2016 (along along the price of gold) and had a strong first half of that year. Since then, however, gold miners have been in decline (with the commodity). They bounced again during 2017 before turning back down again. They appear to have bottomed again last September (when stocks started to weaken) and have risen since then. The ability of the GDX to rise above its 2016-2018 down trendline is a bullish sign (see circle). It's also encouraging to see the miners outperform the stock market over the last four months. That can be seen by the solid area which is a relative strength ratio of the GDX divided by the S&P 500 (SPX). The fourth quarter upturn in the ratio is the result of falling stock prices and a rising price of gold (see arrow). Which may be a harbinger of things to come if stocks are unable to regain those fourth quarter losses. In the past, gold assets have usually done better when a bull market in stocks has peaked, or is in the process of peaking. Which may describe what lies ahead for 2019. The current stock rally is an attempt to regain fourth quarter losses, and repair technical damage done to longer-range charts and indicators. But there are a lot of overhead resistance barriers that need to be overcome to do that. Stocks are in the process of testing some of those resistance barriers in today's trading.

Chart 4

STOCKS ARE HAVING A STRONG DAY... Stocks are having a strong day on the back of some encouraging fourth quarter earnings reports. All sectors are in the black, with consumer discretionary and technology stocks in the lead. The Dow and Nasdaq are leading the gains. Chart 5 shows the S&P 500 climbing to the upper part of a small consolidation pattern formed over the past eight trading days (black circle). That also puts the SPX in position to challenge the falling trendline drawn over its October/December highs. If it breaks through that black resistance line, the 200-day moving average would be next in sight (red arrow).

Chart 5