Still a Methodical Advance
This is the second time this week we feel the urge to write about gold stocks, which may be a short term negative contrarian signal. However, we are quite pleased with the classical stair-step advance that has occurred in the sector so far this year. It lacks the extreme volatility that was on display during the previous bear market period and keeps tracing out well-established bullish patterns, which so far continue to lead to follow-through moves. Even better, in spite of the fact that the sector remains one of the best-performing market sectors this year, its rally is barely eliciting comment outside of ‘gold bug’ circles. In other words, it hasn’t even been noticed yet, which is quite remarkable considering GDX is up over 36% since its late December low. GDXJ has surged by an even more impressive 55.5% since then.
As we have pointed out earlier this week, many of the ‘old hands’ in gold-bug land are cautious as well. Sooner or later there will of course be a setback correcting the advance, but the fact that it hasn’t produced a great deal of enthusiasm so far strikes us as a bullish sign. On Thursday, gold stocks once again rallied to a new high for the move, breaking out of the pennant/triangle formation we discussed on Tuesday. In fact, the sector has in the meantime already moved to the next lateral resistance level. This is all the more remarkable as Thursday’s move higher coincided with the DJIA shedding 230 points on the day. It seems that funds are rotating out of stock market sectors that have hitherto done well and are partly being redeployed in the gold sector - which is traditionally negatively correlated with the broader stock market in the long term and has incidentally been among last year’s biggest losers. Here is what things looked like as of Thursday’s close:
The HUI moves to the upside from another triangular consolidation, reaching the next zone of resistance in the process – click to enlarge.
