Gold Stocks Continue to Outperform the Precious Metals
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Gold prices have remained under pressure in recent days despite a growing laundry list of concerns, from falling equities and rising treasury yields to continued geopolitical worries. To the frustration of many, gold has been unable to break out of its nearly 4-month consolidation between $1300 to $1365 but the miners have been quietly outperforming during the past two months.
While the safe haven metal has been sold recently because of strength in the U.S. dollar, it has been the miners which have been showing strength similar to other inflation-sensitive assets like crude oil. The U.S. dollar strength amid rising crude oil has traders scratching their heads trying to explain this unusual phenomenon. Oil prices have historically risen with gold prices and its miners, along with being a leading indicator for other inflation-sensitive commodities.
Rising Treasury yields have been pulling the US dollar toward strong resistance around the 92 region on the Cash Settle Index but the buck is becoming short-term over-bought. The worlds reserve currency has zoomed nearly 3% higher while rising 7 of the past 8 sessions and the benchmark U.S. 10-year Treasury Yield has risen to over 3.0% for the first time in more than four years.
Although the surging US dollar has beaten gold down to a 5-week low and thwarted the silver short squeeze since last Wednesday, the GDX continues to make higher highs and higher lows from its ultimate February 9th low at $20.83. As of the COMEX close on Thursday morning, gold is down roughly $45 from its $1359 high last week, yet the global miner ETF is down just 2% off its high of $23.30 on April 18th. During previous moves down in the sector, as this 21-month consolidation in gold stocks drags on, the miners were hit far worse during similar corrections in the gold price.
In late January, gold was trading at $1365 and while it corrected $55 in 2 weeks, the GDX lost over 16% during the same time span. It has been my contention the GDX made its final low on February 9th, just below critical support at the $21 level. The final spike low was made just a half hour before the session ended, then reversed over 2% on huge volume to un-changed on the day. Major over-sold spike lows, which usually occur during lengthy gold stock consolidations, have a habit of ending with a sharp sell-off and an intra-day reversal in the GDX on large volume. In hindsight, after the inevitable break-out of extended gold stock consolidations, these intra-day reversal moves can eventually turn out to be THE major low before an impulse move higher begins.
Moreover, with the new Q1 2018 earnings season getting underway, the two largest global gold producers, Barrick Gold (ABX) & Newmont Mining (NEM), issued their Q1 results this week and both have maintained their respective quarterly dividends. Barrick was in-line with analysts’ expectations, while the Newmont result was ahead of market expectations for around 33 cents per share, according to news reports. In fact, the NEM share price made a 52-week high close this month and is trending upwards towards a multi-year high close. Both of these major miners make up a combined 20% of the holdings in GDX.
The gold price appears to be targeting the $1300 level as we head into month end on Monday. Since the miners have been outperforming the gold price and trending higher during the past few months, they may be signaling this critical support level in bullion will hold before finally breaking out above long-term resistance at $1365 very soon. If you require assistance in choosing the best quality junior resource stocks to invest, please stop by my website and check out the subscription service at http://juniorminerjunky.com/