Analysis and Opinion »

Gold Miners Gain Traction Against the Yellow Metal

David Becker
Share on StockTwits
Published on
Gold Miners Gain Traction Against the Yellow Metal

Gold is trading differently compared to the gold mining stocks. In the last month, the behavior of GDXJ and GDX are showing more resilience as $GOLD has fallen. This important change may prove to be the turning point for patient investors in the industry group. Gold prices are trading near the bottom trend line. The gold mining ETF’s are trading near the top of their ranges for the same period.

The bullish percent gold miners index shows a different story. As $GOLD fell back below the $1300 level, almost 10% more of the gold mining stocks in the Bullish Percent Index have gone on bullish buy signals. This is a critical change in behaviour as investors get more bullish on the miners, even though $GOLD is making lower lows in the short term.

The ratio between gold mining stocks and gold prices have increase substantially over the past few months representing a large increase in the relative value of gold mining stocks. Despite the recent correction in the ratio, there is a long way to go, which could provide ample opportunity for investors to place a pair trade.

Gold prices continue to get eroded by low inflation and a rising dollar. The Eurozone August HICP inflation fell to 0.3% year over year from 0.4% year over year in the previous month. The decline was in line with consensus expectations and not quite the significant drop towards deflation territory, the ECB source story this week suggested would be necessary for further ECB action next week. The dollar has continued to gain ground and since gold prices are looked at as a currency relative to the dollar, higher US interest rates have the effect of eroding gold prices.

Share on StockTwits

Iron FX 1.11156/1.11128 2.8
XM Markets 1.09948/1.09928 2
FxPro 1.10184/1.10171 1.3
FXCM 1.13943/1.13912 3.1