Gold, silver, and the mining stocks have been in a consolidation phase now since the end of July. They also have been outperforming the S&P 500 so far year to date, but people’s attention has moved away from them during this consolidation period with all of the gyrations and drama in names like Tesla. Yesterday though shares of Agnico Eagle (NYSEARCA: AEM) broke out of their own consolidation phase to close on a new 52-week high. Check out the nice volume surge too in the chart.
I own a position in AEM as it is a leading big cap mining stock. My favorite indicator though for gold and mining stocks is the GDX/GLD ratio. What it measures it the performance of mining stocks relative to gold and they tend to lead the action in gold. This ratio has been firm all during this sideways phase in the sector to confirm to us that it is a simple consolidation pattern in the making and not a major top as some have mistakenly claimed. When this ratios busts out look for the next big run in the metals and mining stocks to start. Some stocks will move ahead of the rest as AEM has done, but the ratio is now on the verge of breaking out itself.
Notice that this ratio actually dipped during the last consolidation period in gold from May to the end of July. This time it has barely fallen at all. That shows you the potential here. It shows you what is lining up. It’s why I think now is a great time to get into my top small cap mining stock for this month and for plays like Vendetta Mining. This is looking like it will be an interesting month for mining stocks.