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Daily Report : Gold Is Holding Up While Miners Struggle

Jason Goepfert
2021-08-26
As gold rose toward the upper end of its 2-month range this week, gold mining stocks remained near the lower end of their range. That has led to weakness in the months ahead.
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Headlines


Gold Is Holding Up While Miners Struggle: As gold rose toward the upper end of its 2-month range this week, gold mining stocks remained near the lower end of their range. That has led to weakness in the months ahead.

Bottom Line:

STOCKS: Hold
Sentiment continues to decline from the speculative February peak. With deteriorating breadth, this raises the risk of poor short- to medium-term returns until optimism and better breadth returns. See the Outlook & Allocations page for more.

BONDS: Hold
Various parts of the market got hit in March, with the lowest Bond Optimism Index we usually see during healthy environments. Bond prices have modest recovered and there is no edge among the data we follow.

GOLD: Hold
Gold and miners were rejected after trying to recover above their 200-day averages in May. Lately, some medium-term (not long-term) oversold extremes in breadth measures among miners have triggered.

Smart / Dumb Money Confidence

Smart Money Confidence: 47% Dumb Money Confidence: 56%

Risk Levels

Stocks Short-Term

Stocks Medium-Term

Bonds

Crude Oil

Gold

Agriculture

Research

Gold Is Holding Up While Miners Struggle

By Jason Goepfert

BOTTOM LINE
As gold rose toward the upper end of its 2-month range this week, gold mining stocks remained near the lower end of their range. That has led to weakness in the months ahead.

FORECAST / TIMEFRAME
None

When gold tries to change its long-term trend, it usually struggles, as we discussed in May. Its sensitivity to economic surprises and interest rates also didn't help the outlook.

After a June plunge, though, gold has been treading water until recently. After a good week, gold is now trading in the upper end of its 2-month range. Gold mining stocks, however, are struggling.

Looking at each of them relative to their ranges of the past 2 months, we can see how stark this divergence is.

NOT A GREAT SIGN FOR MINERS

When mining stocks were in a downtrend at the time, this was not a good sign. The table below shows returns in the HUI Gold Bugs index when there were similar divergences between the price of gold and miners. This only includes signals when the Gold Bugs index was trading below its 200-day moving average.

Medium-term returns for miners were weak. Consistency was very poor, and the risk/reward was either skewed toward risk or was evenly matched at best. That's not the best setup for gold bugs.

If miners were in an uptrend at the time of these signals, it was better for medium- to long-term returns.

NOT GREAT FOR GOLD, EITHER

While there is a high positive correlation between the price of gold and the performance of gold mining stocks, it's not perfect. So, we might think that if gold is doing relatively better than miners, it was a good sign for gold going forward. 'Twas not to be.

Across all time frames, gold performed worse than during random periods. Relative strength in gold didn't translate into stronger returns.

Weakness over the past few weeks, in particular, has meant that some of the breadth metrics among miners are starting to reach oversold levels. 

On August 19, more than a third of mining stocks fell to a 52-week low, the most in 3 years. It triggered right at the bottom in 2018. It's a high number for a medium-term washout but is well under the 50% or higher figure we see during long-term panics.

Since May, we've struggled to find much that has consistently preceded strong positive returns in gold or miners. That's still the case. There are some modest extremes among miner breadth metrics, maybe even enough to expect a multi-week or longer bounce. There just isn't enough consistency among what we've been watching to suggest that it's a high probability setup.


Active Studies

Click here to view the Active Research on the site.
Time FrameBullishBearish
Short-Term05
Medium-Term43
Long-Term115

Indicators at Extremes

Click here to view on the site (% Extremes and "Excess" tabs on the dashboard).
% Showing Pessimism: 8%
Bullish for Stocks

Inverse ETF Volume
S&P 500 Price Oscillator
S&P 500 Down Pressure
NYSE Up Issues Ratio
NYSE Up Volume Ratio
% Showing Optimism: 33%
Bearish for Stocks

% Showing Excess Optimism
Rydex Money Market %
Rydex Ratio
SKEW Index
CSFB Fear Barometer
Equity Put/Call Ratio
OEX Put/Call Ratio
OEX Open Interest Ratio
LOBO Put/Call Ratio
Options Speculation Index
ROBO Put/Call Ratio
NAAIM Exposure Index
NYSE Available Cash
AAII Allocation - Stocks
Retail Money Market Ratio
VIX Transform
Mutual Fund Cash Level
Equity / Money Market Asset Ratio

Portfolio

PositionDescriptionWeight %Added / ReducedDate
StocksRSP4.1Added 4.1%2021-05-19
Bonds23.9% BND, 6.9% SCHP30.7Reduced 7.1%2021-05-19
CommoditiesGCC2.6Reduced 2.1%
2020-09-04
Precious MetalsGDX5.6Reduced 4.2%2021-05-19
Special Situations4.3% XLE, 2.2% PSCE7.6Reduced 5.6%2021-04-22
Cash49.4
Updates (Changes made today are underlined)

Much of our momentum and trend work has remained positive for several months, with some scattered exceptions. Almost all sentiment-related work has shown a poor risk/reward ratio for stocks, especially as speculation drove to record highs in exuberance in February. Much of that has worn off, and most of our models are back toward neutral levels. There isn't much to be excited about here.

The same goes for bonds and even gold. Gold has been performing well lately and is back above long-term trend lines. The issue is that it has a poor record of holding onto gains when attempting a long-term trend change like this, so we'll take a wait-and-see approach.

RETURN YTD:  8.2%

2020: 8.1%, 2019: 12.6%, 2018: 0.6%, 2017: 3.8%, 2016: 17.1%, 2015: 9.2%, 2014: 14.5%, 2013: 2.2%, 2012: 10.8%, 2011: 16.5%, 2010: 15.3%, 2009: 23.9%, 2008: 16.2%, 2007: 7.8%

Phase Table

Click here to view the Phase Table on the site.

Ranks

Click here to view on the site (Ranks tab on the Dashboard).

Sentiment Around The World

Click here to view on the site.

Optimism Index Thumbnails

Sector ETF's - 10-Day Moving Average
Country ETF's - 10-Day Moving Average
Bond ETF's - 10-Day Moving Average
Currency ETF's - 5-Day Moving Average
Commodity ETF's - 5-Day Moving Average

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