GOLD REACHES SEVEN-YEAR HIGH -- GOLD MINERS ARE ALSO TURNING UP -- NEWMONT GOLDCORP EXCEEDS 2016 HIGH -- BARRICK GOLD REACHES FOUR-YEAR HIGH
GOLD RESUMES UPTREND... My weekend message explained why falling bond yields, and an over-extended stock market, might be two of the reasons that investors have been buying gold since the start of the year. And they're doing so in the face of a rising dollar. The message also suggested that gold is often viewed as an alternative to global currencies that are losing value. And a lot of them are. The euro has fallen to the lowest level in nearly three years; while the yen has fallen this week to the lowest level in nearly a year. That may be driving some foreign money into the yellow metal. Whatever the reasons, all that really matters is what the chart of gold itself is showing. And it's showing a rising market.
GOLD SPDR HITS SEVEN-YEAR HIGH... The weekly bars in Chart 1 show the Gold Shares SPDR (GLD) rising this week to the highest level in nearly seven years. That's not a new trend. The chart shows the price of gold forming a major bottom between the start of 2016 and mid-2019. Gold achieved a major bullish breakout in the middle of 2019 (see circle) when it rose above a major "neckline" drawn over peaks going back five years. And it's been in an uptrend since then. Gold miners are also attracting new buying. And just in time.
GOLD MINERS ETF NEARS MAJOR BREAKOUT... Gold mining stocksmay be nearing a bullish breakout of their own. The boxed area on Chart 2 shows the VanEck Vectors Gold Miners ETF (GDX) trading sideways just below a flat resistance line drawn over its 2016 high. A decisive close above that trendline would constitute a major breakout for gold miners. The fact that the metal has already broken out increases the odds that its miners will do the same. In fact, gold miners usually do better than the metal during an uptrend. And have some catching up to do.
GOLD MINERS USUALLY OUTPERFORM THE METAL IN UPTREND... The solid brown line in Chart 3 is a relative strength ratio of the Gold Miners ETF (GDX) divided by the Gold SPDR (GLD) over the last eight years. The solid area represents the price of gold itself. The point of the chart is to show that gold miners usually rise faster than the metal during a major uptrend. Gold started rising at the start of 2016 and had a strong year. Notice, however, that the GDX/GLD ratio also rose sharply that year. That meant that gold miners rose faster than the metal. During the two years between 2016 and 2018 as gold prices traded sideways in a bottoming formation, the falling ratio shows miners underperforming the metal. Starting in late 2018, however, gold started rising again. The rising ratio, however, shows miners taking the lead once again. That pattern continued until the middle of last year when gold starting to outperform its miners. Let's take a closer look at what's happened since then.
MINING/METAL RATIO TESTING SUPPORT...My opening paragraph suggested that this week's buying of gold miners was taking place just in time. Here's why. The brown line in Chart 4 shows the GDX/GLD ratio line peaking last August along with the price of gold. And they both strengthened during December. Since the start of this year, however, the metal has been rising while the ratio hasn't. That reflects weaker performance by miners. The chart, however, shows the ratio starting to recover from potential chart support along fourth quarter lows. That would be a logical spot for gold miners to start playing catch-up to the metal which is hitting new highs.
NEWMONT GOLDCORP EXCEEDS 2016 HIGH... Newmont Goldcorp (NEM) is the biggest gold miner in the GDX. And it's also has one of its strongest charts. The weekly bars in Chart 5 show the gold mining leader rising above its 2016 peak near 43 to reach the highest level in nearly eight years.
BARRICK BREAKOUT... The second biggest stock in the GDX is Barrick Gold (GOLD). The weekly bars in Chart 6 show that gold miner surging this week to the highest level since 2016; and heading toward a test of that year's high.
