Gold is trading down below $1,600 an ounce again in today's trading, and as I stated before, I would not be surprised if gold or gold-related investments trade down again towards the bottom of the range. That said, I think there are some positive signs forming- aside from my timing models near the strong buy range- in the gold complex that lead me to conclude that a bottoming process is underway.
First, the recent performance of gold shares are showing strength relative to the price of gold. As I have shown in prior posts, the price of the gold/precious metal equities tend to lead the price of gold, which makes sense in some respects considering the more forward looking nature of equity investors. The following two graphs show the performance of Royal Gold (ticker RGLD), the Market Vectors Gold Miner Index (ticker GDX), the Phily Gold/Silver Index (ticker XAU) and Gold since February 20th and March 4th. Both of these dates mark significant near-term bottoms in both the price of gold and the gold equities.
Since February 20th
Since March 4th
Standing out is the outperformance of RGLD. As a brief review, RGLD is one of the best operators and most leveraged (to the price of gold that is) companies in the gold space. The company essentially acts as a broker for production of gold mining operations, contractually taking gold from miners at contracted prices and selling into the market at higher prices. RGLD operates an asset-light business model, and in fact only has 19 employees. This asset-light business model means the company's- by not having the same fixed cost operating leverage of gold miners, disproportionately benefit from rising gold prices. Due to this business model, RGLD's stock tends to move more inline with gold prices or in cases when investors are betting on a upturn in the industry, ahead of gold.
This has been the case over the last month. Since February 20th, RGLD's performance is ahead of the price of gold by 6x. Since March 4th, RGLD has outperformed the shiny yellow metal by just under 4x. Additionally, the price of the gold miner indexes (GDX and XAU) have been outperformed gold by more 300 basis points since the March 4th bottom in the shares.
There are also some somewhat positive indicators forming in the charts of the GDX and the Market Vectors Junior Gold Miner Index (ticker GDXJ).
GDX
GDXJ
There a few items of interest on both these charts. First, the trend of the RSI's on each diverged from the price of ETF's back when they hit the short-term bottom in the beginning of March. This can be a positive indicator and could suggest a bottoming process is or soon will be underway. Additionally, the cash flow metrics on each have turned up while the A/D lines have stabilized. Lastly, the GDXJ is showing what I think is real strength here. The price rise that pushed the ETF over the $16 swing point came on higher volume, more so than comparable down turn just tow or three weeks prior. Additionally, the strength on the upside here appears to coming on increased volume.
Most importantly, the volume on the slight dip in the price over the last week has come on lighter volume levels. This suggests, to me, a stabilization in the shares before a potential turn up in the shares. These price/volume characteristics in the junior miners are important in my opinion. The junior miners tend to have more volatile earning streams versus their larger brethren. The positive volume characteristics here suggests that investors are growing more positive on the sector.
First, the recent performance of gold shares are showing strength relative to the price of gold. As I have shown in prior posts, the price of the gold/precious metal equities tend to lead the price of gold, which makes sense in some respects considering the more forward looking nature of equity investors. The following two graphs show the performance of Royal Gold (ticker RGLD), the Market Vectors Gold Miner Index (ticker GDX), the Phily Gold/Silver Index (ticker XAU) and Gold since February 20th and March 4th. Both of these dates mark significant near-term bottoms in both the price of gold and the gold equities.
Since February 20th
Since March 4th
Standing out is the outperformance of RGLD. As a brief review, RGLD is one of the best operators and most leveraged (to the price of gold that is) companies in the gold space. The company essentially acts as a broker for production of gold mining operations, contractually taking gold from miners at contracted prices and selling into the market at higher prices. RGLD operates an asset-light business model, and in fact only has 19 employees. This asset-light business model means the company's- by not having the same fixed cost operating leverage of gold miners, disproportionately benefit from rising gold prices. Due to this business model, RGLD's stock tends to move more inline with gold prices or in cases when investors are betting on a upturn in the industry, ahead of gold.
This has been the case over the last month. Since February 20th, RGLD's performance is ahead of the price of gold by 6x. Since March 4th, RGLD has outperformed the shiny yellow metal by just under 4x. Additionally, the price of the gold miner indexes (GDX and XAU) have been outperformed gold by more 300 basis points since the March 4th bottom in the shares.
There are also some somewhat positive indicators forming in the charts of the GDX and the Market Vectors Junior Gold Miner Index (ticker GDXJ).
GDX
GDXJ
There a few items of interest on both these charts. First, the trend of the RSI's on each diverged from the price of ETF's back when they hit the short-term bottom in the beginning of March. This can be a positive indicator and could suggest a bottoming process is or soon will be underway. Additionally, the cash flow metrics on each have turned up while the A/D lines have stabilized. Lastly, the GDXJ is showing what I think is real strength here. The price rise that pushed the ETF over the $16 swing point came on higher volume, more so than comparable down turn just tow or three weeks prior. Additionally, the strength on the upside here appears to coming on increased volume.
Most importantly, the volume on the slight dip in the price over the last week has come on lighter volume levels. This suggests, to me, a stabilization in the shares before a potential turn up in the shares. These price/volume characteristics in the junior miners are important in my opinion. The junior miners tend to have more volatile earning streams versus their larger brethren. The positive volume characteristics here suggests that investors are growing more positive on the sector.
No comments:
Post a Comment