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Checking in on gold's leading indicators

Commentaries & Views

You would have to be blind, metaphorically speaking, not to see that Gold is back in correction mode.

It never traded above the corrective highs around $1950, and more importantly, it has formed a nasty bearish engulfing candle on the monthly chart after testing the important $1900 resistance level.

That's fine. This is all part of the handle correction of the now 10-year long cup pattern.

Yesterday in a video analysis, I argued that Gold is the macro leader.

In recent years, Gold (and even Silver) have led moves in the US Dollar. As the currency has turned lower and lower, other commodities have dramatically outperformed the precious metals.

Yes, the current rebound in the US Dollar is a problem for Gold and Silver, but recent history argues that precious metals (and Gold especially) should bottom and turn up before the US Dollar turns down again.

The way to gauge that is to follow Gold's performance against foreign currencies, which is a fairly consistent leading indicator for the sector. For example, it advanced to a new all-time high last summer, before Gold.

There are no official leading indicators, but I plot some in the chart below.

When we look at Gold during a correction, we want to see how it performs against foreign currencies and the stock market.

With regard to the gold stocks, we want to see how they are performing against Gold and the stock market. The GDX advance-decline line (not shown) is also an important leading indicator.

Because the resumption of the larger correction is only weeks old, it would be too soon to expect any divergences. Nevertheless, the first thing to watch would be if Gold/FC can hold the dashed line support.

In addition to these "leading" indicators, it's also important to follow sentiment indicators (like the CoT's) and general support levels, which I will discuss over the weeks ahead.

For individual companies, one should assess their current value and potential value in 18 to 24 months at current and potential future metals prices. Then, consider technical support and levels you can buy that are realistic and provide you enhanced upside potential compared to today.

In my experience, big money is made by buying fundamental quality with upside and holding it for a few years. Trading in and out, while enticing, is dangerous and a good way to underperform over the long run.

In my last update, I noted my current top 10 stocks and, pending lower prices, a potential future top 6 stocks.

I’ve positioned myself in companies with the best combination of upside potential and fundamental quality. These are companies you can buy and hold for a few years that have the potential to be 5,7 and 10 baggers after Gold breaks past $2,100/oz.

In our premium service, we continue to identify and accumulate those quality juniors with considerable upside potential over the next 24 months. To learn the stocks we own and intend to buy with at least 3x to 5x potential and more, consider learning more about our premium service.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.