Gold Stocks Continue to Outperform the Precious Metals
Gold priceshave remained under pressure in recent days despite a growing laundry list ofconcerns, from falling equities and rising treasury yields to continuedgeopolitical worries. To the frustration of many, gold has been unable to breakout of its nearly 4-month consolidation between $1300 to $1365 but the minershave been quietly outperforming during the past two months.
While thesafe 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 otherinflation-sensitive assets like crude oil. The U.S. dollar strength amid risingcrude oil has traders scratching their heads trying to explain this unusualphenomenon. Oil prices have historically risen with gold prices and its miners,along with being a leading indicator for other inflation-sensitive commodities.
RisingTreasury yields have been pulling the US dollar toward strong resistance aroundthe 92 region on the Cash Settle Index but the buck is becoming short-termover-bought. The worlds reserve currency has zoomed nearly 3% higher whilerising 7 of the past 8 sessions and the benchmark U.S. 10-year Treasury Yieldhas risen to over 3.0% for the first time in more than four years.
Although thesurging US dollar has beaten gold down to a 5-week low and thwarted the silvershort squeeze since last Wednesday, the GDX continues to make higher highs andhigher lows from its ultimate February 9th low at $20.83. As of theCOMEX close on Thursday morning, gold is down roughly $45 from its $1359 highlast week, yet the global miner ETF is down just 2% off its high of $23.30 onApril 18th. During previous moves down in the sector, as this21-month consolidation in gold stocks drags on, the miners were hit far worseduring similar corrections in the gold price.
In lateJanuary, gold was trading at $1365 and while it corrected $55 in 2 weeks, theGDX lost over 16% during the same time span. It has been my contention the GDX made its final low onFebruary 9th, just below critical support at the $21 level. Thefinal spike low was made just a half hour before the session ended, then reversedover 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 ofending with a sharp sell-off and an intra-day reversal in the GDX on largevolume. In hindsight, after the inevitable break-out of extended gold stockconsolidations, these intra-day reversal moves can eventually turn out to beTHE major low before an impulse move higher begins.
Moreover, withthe new Q1 2018 earnings season getting underway, the two largest global goldproducers, Barrick Gold (ABX) & Newmont Mining (NEM), issued their Q1results this week and both have maintained their respective quarterlydividends. Barrickwas in-line with analysts' expectations, while the Newmont result was ahead ofmarket expectations for around 33 cents per share, according to news reports. Infact, the NEM share price made a 52-week high close this month and is trendingupwards towards a multi-year high close. Both of these major miners make up acombined 20% of the holdings in GDX.
The goldprice appears to be targeting the $1300 level as we head into month end onMonday. Since the miners have been outperforming the gold price and trendinghigher during the past few months, they may be signaling this critical supportlevel in bullion will hold before finally breaking out above long-termresistance at $1365 very soon. If you require assistance in choosing the bestquality junior resource stocks to invest, please stop by my website and checkout the subscription service at http://juniorminerjunky.com/
By David ErfleContributing tokitco.com
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