Gold Shining on the Miners

Gold has been relatively strong lately, and today it closed at its highest level since May. It currently trades around $1,315 an ounce. It isn't just gold that has been showing strength lately but rather, the entire metals space in general. Palladium, another precious metal has been making all-time highs as we highlighted a few weeks ago in a post here. If metals like gold and silver continue their strength, it would likely send mining stocks a lot higher.

Here’s a chart going back to the end of July 2018, showing the performance of the S&P 500 in blue, and gold futures in yellow. As you can see, gold has outperformed the S&P 500 over the past six months.

Chris Kimble is a technician and founder of Kimble Charting Solutions. Over the past couple of months, he's been pounding the table on the metals space. Here are some of The Chart Report’s posts outlining his bullish thesis. Today, Kimble was out with another post on his blog discussing the precious metal space. He highlights mining stocks, in particular, and thinks they will likely do well in an environment where gold is outperforming.

Here’s a chart he includes in his post. It’s a ratio chart of junior gold miners ($GDXJ) relative to the senior gold miners ($GDX) going back to 2012. He explains that this ratio:

“Frequently sends a very important message to the mining sector. This ratio has created a series of higher lows and lower highs over the past few years, which creates a narrowing pennant pattern.”

He goes on to explain that this is occurring while both gold and silver are testing important resistance levels on the long-term charts below.

If the two commodities break out of these long-term downtrends it could send miners flying. Kimble does some great work on metals and commodities as a whole. For now, it’ll be important to watch precious metals and remember the implications a breakout might have on mining stocks.