gold trading, silver trading - daily alerts

przemyslaw-radomski

Mining Stocks: A House Built on Shaky Ground

April 8, 2021, 9:46 AM Przemysław Radomski , CFA

Please log in to read the entire text.
If you don’t have a login yet, please select your access package.

It’s tempting to say that miners are showing strength compared to gold based on the GDX’s performance, but other mining proxies say otherwise.

Just because a house is standing doesn't mean its foundations are solid, and that's exactly the case with the miners. 

There’s one extra thing that I would like to point out about mining stocks’ technical picture today (Apr. 8), and that’s their performance relative to gold.

ChartDescription automatically generated

Some investors might say that mining stocks are showing strength compared to gold as the GDX to gold ratio broke above its declining resistance line.

However, I don’t think it’s fair to say so. I think that seeing a breakout in the GDX to gold ratio is not enough for one to say that the miners to gold ratio is breaking higher.

After all, the GDX ETF is just one proxy for mining stocks, and if miners were really showing strength here, one should also see it in the case of other proxies for the mining stocks when compared to gold.

For instance, the HUI Index to gold ratio, the XAU Index to gold ratio, and the GDXJ (junior mining stocks) to gold ratio.

Chart, histogramDescription automatically generated

There is no breakout in the HUI to gold ratio whatsoever. In fact, the ratio is quite far from its declining resistance line. Even if we chose other late-2020 tops to draw this line, there would still be no breakout.

ChartDescription automatically generated

There is no breakout in the XAU to gold ratio either. The previous attempts for the XAU to gold ratio to rally above their 2020 high marked great shorting opportunities, which is very far from being a bullish implication.

But the most bearish implication comes from gold’s ratio with another ETF – the GDXJ.

ChartDescription automatically generated with medium confidence

The GDXJ to gold ratio actually provides a sell signal, as the tiny breakout above the declining resistance line was already invalidated.

Five out of five previous attempts to break above the declining resistance line failed and were followed by short-term declines. Is this time really different?

It seems to me that the five out of five efficiency in the GDXJ to gold ratio is more important than a single breakout in the GDX to gold ratio, especially considering that it was preceded by a similar breakout in mid-March. That breakout failed and was followed by declines.

Taking all four proxies into account, it seems that the implications are rather neutral to bearish. Especially when taking into account another major ratio - the one between HUI and S&P 500 is after a major, confirmed breakdown.

ChartDescription automatically generated

All in all, the implications of mining stocks’ relative performance to gold and the general stock market are currently bearish.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim targets for gold and mining stocks that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

Did you enjoy the article? Share it with the others!

Gold Alerts

More
menu subelement hover background