Last week we noted that Gold and gold stocks had made a short-term bottom.
The action this week has confirmed such and raised hopes of battered and beleaguered investors.
Gold and gold stocks have broken above initial resistance from double bottoms. Gold has surpassed $1750 while GDX has exceeded $34, and GDXJ has exceeded $49.
In the clean line charts below, I drew resistance in red before adding the 200-day moving averages in blue.
GDX has upside to $38 to $38.50, GDXJ has upside to $51-$53, and Gold has upside to $1825 to $1850.
GDX, GDXJ, Gold
Gold and gold stocks should approach those resistance levels, but the question is, what happens next? Can they rally back near the 2020 highs, or will they grind around at best?
Keep an eye on the stock market and precious metals’ performance against the stock market.
The three most recent big moves in gold stocks coincided with the three most recent declines in the stock market.
Keep an eye on the GDX to S&P ratio (yellow), which is currently lagging the rebound in the sector. The S&P 500 is running to new highs, and as long as that continues, precious metals are unlikely to surpass resistance.
S&P 500, GDX, GDX vs. S&P 500
The other “leading indicators” are mixed.
The positives are Gold has shown better strength against foreign currencies, and the miners are outperforming Gold.
The negatives are GDX’s advance-decline line, and GDX against the S&P 500 have remained muted during this rebound.
The rebound will have some legs to answer the question, but there’s not enough evidence to conclude the rebound will surpass the resistance levels we outlined at the start.
At present, the market has confidence in an economic rebound and growth. If and when that starts to falter, capital will rotate back into precious metals, fueling the next leg higher.
And the signal for that, technically, is Gold and gold stocks outperforming the stock market.
As I noted last week, the bulk of my capital is invested in companies that can add value and aren’t entirely dependent on rising metals prices. These stocks can outperform now and lead the next launch higher.
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