Rising yields have been an enemy of gold and gold miners since early August. In addition, the negative correlation between the 10-year note yield and gold miners has picked up considerably in the last few weeks.
Barrick Gold (Daily) With US 10-Year Yield (Top) And Correlation Between ABX and 10-Year Yields (Bottom)
Barrick Gold (TSX:ABX), the world's 2nd largest gold miner, is currently trading at a negative 96% correlation with US 10-year yields - this is a pretty extreme negative correlation. Historically, when gold miners have reached extreme negative/positive correlations with treasury yields it has usually closely coincided with tops/bottoms in gold and mining shares.
If we look more closely at the ABX daily chart we can see some significant momentum divergences:
Barrick Gold (Daily)
Price has been grinding lower on declining volume. Meanwhile, the Relative Strength and FORCE indexes have diverged (higher low). Barrick is showing evidence of selling exhaustion.
If we zoom out to a longer term chart we can see that ABX is now in a heavy volume-by-price zone that also represents important support/resistance from 2019/2020:
ABX is trading at the same price it traded when gold was around US$1500/oz at the end of 2019. It's not a big leap to state that ABX shares may have already priced in a worst case scenario for gold at this point.
Turning to the world's largest gold producer, Newmont Mining (NYSE:NEM), we can see that NEM has fallen below its 2-standard deviation lower Bollinger Band on the daily chart:
NEM is also back near the June 2020 correction lows, and the $50-$54 price zone represents important long-term support/resistance.
While recency bias causes most investors to cringe and shun the thought of buying into such nasty downtrends as we see in the above charts, the best buys are usually the hardest ones to make.
Based upon the above charts there is evidence that the gold super majors (Barrick and Newmont) are at/near an important inflection point. In addition, the senior gold producers also offer compelling values based upon a number of key valuation metrics (free cash flow yield, dividend yield, price/book, etc.). A growing sector rotation away from high valuation/growth tech stocks to deeper value energy, financials, and materials stocks should also provide some tailwinds for the larger gold miners.
I should also note that gold spent a good deal of time trading around the US$1,700 level during the first half of 2020, before launching above US$2,000 in a summer sprint higher. $1,700 is a reasonable technical support level and also measures nearly 20% from the summer all-time high at $2,089.
Tops are a process and bottoms are an event. We haven't seen the bottom for gold and precious metals mining shares yet, but my guess is that we are pretty damn close. We will want to see evidence that miners are beginning to outperform gold itself, in addition to a declining correlation between yields and gold stocks like Barrick and Newmont.
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