From the Desk of Ian Culley @IanCulley
Here comes the Fed.
Another FOMC decision is upon us.
But the market has the central bank’s number this time, or so it seems.
The fed fund futures are pricing in an almost certain chance we’ll see a 25-basis-point rate hike come Wednesday.
With general consensus running at all-time highs, the focus will shift toward Jerome Powell’s words, basically the Fed’s forward guidance.
I won’t tune in to that press conference.
What I will do is monitor price.
When it comes to precious metals I’m following absolute trends, as usual, but I’m also tracking these two critical relative trends…
First, let’s take a look at the Gold Miners ETF $GDX versus the S&P 500 ETF $SPY:
It’s now or never for gold miners.
Gold mining stocks are, without a doubt, participating in gold’s rally to new all-time highs. It’s difficult to imagine a scenario where they don’t.
And when assets climb within strong uptrends, they tend to outperform their alternatives.
Notice the GDX-to-SPY ratio ripped higher during gold’s rally in 2016 and 2019-20.
I expect similar relative strength from GDX versus the broader market if and when gold breaks out.
Now is the time, and the shelf of former lows marks the place for gold miners to assume a leadership role.
The second relative trend on my radar centers on risk appetite.
Check out the Silver Miners ETF $SIL versus the iShares Silver ETF $SLV:
I highlighted this ratio in early June as it neared a crucial inflection point at its former 2016 lows. It’s continued to fall since then, retesting those former lows.
It’s also now or never for silver miners versus the physical metal.
Money will flow into these mining stocks in a true “risk on” event for the precious metals space.
Gold will rip if and when SIL catches a relative bid.
And so will silver mining stocks such as Endeavour Silver $EXK:
Overhead supply looms large as sellers defend a critical level.
I like buying EXK on strength if and when the bulls drive price above 4 with an initial target at 6 and a secondary objective at approximately 8.
But that’s not likely to happen if the SIL-to-SLV ratio continues to drop, or if GDX underperforms the broader market.
I’m focusing on these relative trends and absolute price levels when it comes to precious metals.
Especially this week, as the dominant narratives will do their best to steer the attention toward the Fed.
Stay tuned!
Click here to watch this week’s Gold Rush Video:
Let us know what you think. We love hearing from you.
Thanks for reading.
And be sure to download this week’s Precious Metals Report below!
Allstarcharts Team
