I said pretty much everything I was going to say about yesterday's market action in the gold miners in the post I wrote yesterday evening.
So far it looks like the gold miners $GDX $GDXJ are set for a bounce, however, this isn't a bounce we want to chase. After a day like yesterday it's likely that even if we get a short term rally, that could even last up to a week, yesterday's low will be retested.
Last night I also pointed out the GLD/GDX ratio moving way out of whack and surging above its 3-standard deviation Bollinger Band:
GLD/GDX Ratio (Daily)
While we are certainly likely to see some short term mean reversion (GDX outperforming GLD), if we pull the ratio of gold to gold miners out to a 20 year time frame using the HUI (Gold Bugs Index) you will see we are pretty much in the middle of a long term, yet highly volatile, range:
Gold/HUI Ratio (Monthly - 20 Year)
This ratio of gold to the gold miners is very useful as sort of a guide post. Gold mining shares reached a generational low buying opportunity in 2000 and proceeded to enter into a roaring bull market period which lasted until 2006. The 2011-2015 bear market was so brutal and vicious that it took the Gold/HUI ratio soaring well above its previous 2000 peak and the bull market cycle we have experienced since January 2016 has seen a large correction in the Gold/HUI ratio.
Turning to the GLD/GDX ratio which is more relevant for day to day trading activity it is likely that this ratio will remain range-bound between 4.6 on the downside and 6.0 on the upside before the next large directional market move breaks us out from that range. For the gold mining bull market to continue we will eventually need to see the 4.60 level in the GLD/GDX ratio breached to the downside, whereas, a move back above 6.0 in the ratio would be a bad sign for gold mining bulls:
GLD/GDX Ratio (Weekly)
The downsloping 50-week moving average in the GLD/GDX chart is indicative of a bull market trend in mining shares just as the upsloping 50-week moving in this ratio between 2012 and 2015 was indicative of a bear market trend in mining shares.
DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The views expressed in this publication and on the EnergyandGold website do not necessarily reflect the views of Energy and Gold Publishing LTD, publisher of EnergyandGold.com. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.
