Gold Mining Shares Outperform As Gold Finds Support

posted in: Charts, Gold, Gold Stocks | 0

The following quote from the most recent RBC “Commodity Comment” sums up the current gold market environment quite well:

“The proliferation of unknowns, inherently difficult to hedge, remains a key reason why we recommend gold allocations and underpins our positive view through year end despite a still strong dollar and a rising rate environment.”

The fact that gold analysts can remain bullish on the yellow metal while acknowledging that we are in a strong dollar and rising rate environment is noteworthy in itself. The possibility that we are NOT in a rising rate environment (yields may have topped last month) and that the US dollar may have seen its high for quite some time offer an especially bullish bonus.


After tapping a minor resistance level at $1220 Monday morning gold spent the rest of the week under some selling pressure before finding support at a key long term support level ($1180) this morning:


Gold (Daily)


After a steady nearly $100/oz rally which lasted more than a month, a four day pullback to shake loose some weak handed bulls and reset market expectations is completely normal and healthy. The fact that Relative Strength (RSI) and Money Flow (MFI), both highlighted with green circles, pulled back near the median line add weight to the idea that this morning’s low marked the end of the pullback and gold prices should head back up to retest $1220 over the next couple of weeks.

It is no accident that the $1180 level was successfully tested yet again as this has been an important support/resistance level for years:


Gold (Weekly)


$1220 now represents important short term resistance with a much bigger level above at $1250.

Perhaps the most encouraging aspect of being a precious metals investor in 2017 has been the tremendous outperformance of precious metals equities relative to gold:



While gold has risen 3.2% thus far in 2017, the GDXJ (Jr Gold Miners ETF) is up 16.9% and the GDX is up 11%! Silver has also more than doubled gold’s performance with a 7.2% gain year-to-date. These are strong indications that risk appetite is returning to the precious metals space; we have seen similar outperformance of mining shares at the beginning of previous bull market cycles (2009, 2016, etc.).

Another bullish tailwind comes in the form of seasonality, February is the 2nd most bullish month (in terms of average monthly return) for the gold miners historically over the last 20 years:


HUI Gold Bugs Index (Seasonality since 1998)



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