Gold Stocks Still Marching

Gold Stocks Still Marching By: Adam Hamilton, CPA, Zeal Research for Gold Seek

The gold miners’ stocks are still marching, grinding higher on balance in a solid upleg.  While interest in this sector has faded since late February, it is nicely set up for a strong rally.  After consolidating high and establishing a sturdy base, the gold miners are likely to soon report greatly-improved first-quarter results.  Couple that with gold itself powering higher, and the slumbering gold stocks should surge substantially.

The gold stocks are mired in something of a psychological limbo these days.  They aren’t exactly out of favor, but there’s little enthusiasm for this sector.  Investors and speculators have largely lost interest for technical, sentimental, and fundamental reasons.  It’s been 6 weeks since this gold-stock upleg surged to material new highs.  The major gold miners have been mostly grinding sideways since, consolidating and basing.

Contributing heavily to traders’ apathy is gold’s own price action in that recent span.  Gold overwhelmingly drives gold-mining profits, making these stocks leveraged plays on gold.  Gold’s own latest upleg high of $1341 came back in mid-February right before gold stocks topped.  Over the next 12 trading days gold fell 4.1% to $1285 during its usual pre-spring-rally-pullback period.  Slumps invariably sap traders’ enthusiasm.

Gold’s seasonal spring rally launched right on schedule after that.  By late March this metal had gained back 2/3rds of its pullback losses.  The gold stocks surged right back up to challenge their late-February highs on that, but couldn’t break out decisively.  Then gold rolled over again during these last couple weeks, revisiting those pre-spring-rally lows.  That spooked gold-stock traders, so they sold in sympathy.

Gold’s problem is the great complacency and euphoria spewing forth from the massive rally in the general stock markets.  Largely in Q4, the flagship S&P 500 broad-market stock index (SPX) plunged 19.8% from an all-time record peak to deep near-bear lows.  But since then it has soared 22.2% higher in what looks like a monster bear-market rally.  The SPX has regained an incredible 9/10ths of its severe-correction loss!

Gold is the ultimate portfolio diversifier, tending to rally when stock markets fall.  Gold investment demand surges as traders rush to diversify stock-dominated portfolios.  December was a key case in point, as gold powered 4.9% higher while the SPX plunged 9.2%.  But complacency mushrooms after stock markets rally strongly, and prudent money management is quickly forgotten.  So capital inflows into gold wither again.

While sideways-at-best technicals and deteriorating sentiment are the main reasons this gold-stock upleg has stalled, fundamentals played a role too.  The major gold miners of the leading gold-stock investment vehicle, the GDX VanEck Vectors Gold Miners ETF, reported their Q4’18 operating and financial results between early February to mid-March.  And they proved fairly lackluster due to lower prevailing gold prices.

Yet despite these considerable headwinds, the gold stocks are still marching higher on balance.  This chart looks at GDX over the past several years or so.  Despite the apathy traders feel, this young gold-stock upleg remains solid.  The gold miners’ stocks are still gradually grinding higher in a well-defined uptrend channel.  They are well-positioned to surge on any good news, which is likely right around the corner.

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Gold Seek

Various authors presenting analysis and commentary on the precious metals, economy and precious metals mining markets.