Gold Mining Stocks: A House Built on Shaky Ground / Commodities / Gold and Silver Stocks 2021
It’s tempting to say that miners areshowing strength compared to gold based on the GDX’s performance, but othermining proxies say otherwise.
Just because a house is standing doesn'tmean its foundations are solid, and that's exactly the case with the miners.
There’s one extra thing that I would liketo point out about mining stocks’ technical picture today (Apr. 8), and that’stheir performance relative to gold.
Some investors might say that miningstocks are showing strength compared to gold as the GDX to gold ratio brokeabove its declining resistance line.
However, I don’t think it’s fair to sayso. I think that seeing a breakout in the GDX to gold ratio is not enough for one to say that the miners togold ratio is breaking higher.
After all, the GDX ETF is just one proxyfor mining stocks, and if miners were really showing strength here, one should also see it in the case of other proxies forthe mining stocks when compared to gold.
For instance, the HUIIndex to gold ratio, the XAUIndex to gold ratio, and the GDXJ ( juniormining stocks ) to gold ratio.
There is no breakout in the HUI to goldratio whatsoever. In fact, the ratio is quite far from its declining resistanceline. Even if we chose other late-2020 tops to draw this line, there wouldstill be no breakout.
There is no breakout in the XAU to goldratio either. The previous attempts for the XAU to gold ratio to rally abovetheir 2020 high marked great shorting opportunities, which is very far frombeing a bullish implication.
But the most bearish implication comesfrom gold’s ratio with another ETF – the GDXJ.
The GDXJ to gold ratio actually providesa sell signal, as the tiny breakout above the declining resistance line wasalready invalidated.
Five out of five previous attempts tobreak above the declining resistance line failed and were followed byshort-term declines. Is this time really different?
It seems to me that the five out of fiveefficiency in the GDXJ to gold ratio is more important than a single breakoutin the GDX to gold ratio, especially considering that it was preceded by asimilar breakout in mid-March. That breakout failed and was followed bydeclines.
Taking all four proxies into account, itseems that the implications are rather neutral to bearish. Especially whentaking into account another major ratio - the one between HUI and S&P 500is after a major, confirmed breakdown.
All in all, the implications of mining stocks’relative performance to gold and the general stock market are currentlybearish.
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Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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