The price of gold continued its current correction by going through its most recent low yesterday to fall down towards $1750. Mining stocks fell too, but they were fairly firm in regards to the decline in the metal. This is a positive sign for both that suggests that we are close to the end of this correction in terms of price.
Remember the GDX/GLD ratio tends to be a leading indicator for both. When it goes up or sideways as gold drops it creates a positive divergence. That happened yesterday. Here is a 60-minute chart of the GDX, with the GDX/ratio on the bottom of it and then the GLD below it.
You can see how the GDX/GLD ratio began to trend down on June 17th, as the GDX fell harder than gold to signal the start of a potential correction. The ratio continued lower along with both, but as gold made a new low for the month on Tuesday the ratio actually finished the day up. This is the same thing it in early March as the GDX made a new low. It took another month for a consolidation off that bottom in gold to form to launch a new rally, but the day the GDX/GLD ratio firmed up marked the real price low for gold stocks.
The ratio is telling us that we are near the end of this correction in terms of price for mining stocks. It likely will take several weeks for gold to start another rally. In March it made a double bottom.
I talked about this and more with Jim Goddard of www.howestreet.com in this interview.
-Mike
