"Gold"-ilocks and the Three...Bulls?

The "bugs" are getting giddy. Could an 8-year drought in returns for Precious Metals finally be coming to an end? There is no definitive move yet, but many seem to be quite anxious about the recent moves we have seen in both the metals themselves and their mining counterparts.

The most popular chart that we have seen is the massive base in Gold ($GC_F) itself, as expressed below by JC O'Hara, chief technician at MKM Partners:

Last week on CNBC's 'Trading Nation', JC said he believed that "If gold prices do push past their five-year trading range, that would be a major green light for prospective gold buyers."

Bulls have wanted to see price break above the $1400/oz. area for a while now, and we are the closest we have been in the last five years:

(Where's John Roque to talk about Brobdingnagian bases when you need him?)

Mark Tepper, CEO of Strategic Wealth Partners, has a slightly less-bullish view on the yellow rock. “We don’t own it right now. We’re not opposed to it, but it has to be for the right reason. In my opinion, there are two reasons to own gold. The first is for risk-off purposes, and the second is as an inflation hedge. And, right now, gold’s benefiting from the risk-off trade.”

However, when looking at Gold relative to multiple currencies, and not just the US Dollar, the metal has already broken to new highs, as pointed out by Mark Newton of Newton Advisors:

More specifically, Mark Ungewitter is watching Gold versus both the Euro ($XEU) and Japanese Yen ($XJY):

David Keller of Sierra Alpha Research likes the recent overbought action in the Gold & Silver Index ($XAU) and thinks that even if there's a short-term correction, we should see price eventually push higher:

But before we get too far down this road, there is one chart that we need to be paying attention to and that is the relative relationship between Silver and Gold. Historically, for a true "risk on" environment in Precious Metals, we would want to see Silver outperform Gold.  Michele Schneider alludes to this phenomena in a recent post of hers. For her, she sees a potential scenario for overall inflation to pick up and thinks Precious Metals could be an ideal way to play that growing trend. 

"The top chart is silver. If the price of silver remains above 14.05, that could be a sign for the ratio to finally flip. The bottom chart shows the moving averages and Bollinger bands. The red line is the 20-day moving average. Should the Silver to Gold ratio levels clear that area, I would expect to see silver to play some serious catch-up. Furthermore, with the prospect of the Federal Reserve lowering interest rates later this year, we could see inflation indicators also flip."

It's important to add that the last time this ratio saw a rally higher was in the first half of 2016. That advancement eventually failed after 5-6 months and was indeed not a sustainable move higher:

With that being said, how to the Silver charts look these days? Chris Kimble of Kimble Charting thinks that we could be on the verge up a new bull market in this metal:

In a recent article, Chris tells us that:

"Silver hit the top of this channel back in 2011 at $50, where a long-term bear market started. The 65% decline over the past 8-years has it testing the bottom of this multi-decade channel and its 23% retracement level of the low at $3.50 and high of $50. While testing the 23% level, it has created a series of level lows and lower highs. Silver looks to be creating a pattern similar to the lows back in 2001 when it was creating a base to start a multi-year bull market from. If Silver breaks above heavy resistance at (3), it is possible that it could be starting a new leg higher, similar to the breakout in 2002!"

Nick Marino, a fellow contributor to The Chart Report, covered Gold back at the end up April. Since then, the shiny metal, and the companies who mine for it have outperformed the broad equity market by a decent margin: So, how should we play this potential rally in Gold? One of the best choices to make might be through the Miners ($GDX, $GDXJ) themselves:

A longer-term view from Ryan Detrick:

And the award for "Best in Class" has to go to Kirkland Lake Gold ($KL), which has shown incredible relative strength, compared to its peer group, over the last few years:

A few other Mining stocks that are showing potential for further upside are Royal Gold ($RGLD), Agnico Eagle Mines ($AEM) and Barrick Gold ($GOLD):

While Gold and Gold Miners have indeed seen a nice rally recently, There is one other environment that I'd like to bring to your attention: 1988-1996. Over this 8-year span, we saw Gold form a very nice base which saw an attempt to finally break higher in early 1996. This is very similar to the price action we are currently witnessing. However, that upward thrust did not last and over the next three years, Gold fell from $430/oz. to around $250/oz. 

Only time will tell if a new bull market in Gold is upon us. As of late the relative strength against equities has been strong, but "little brother" Silver ($SV_F) has yet to join the party in terms of performance. The physical asset needs to capture the $1400/oz. level and hold. If that occurs, Silver could possibly play catch up. There are also strong moves happening under the surface in individual mining names, as mentioned above. For this to continue, other assets such as the US Dollar ($DXY) most likely need to show sustained weakness.