The entire complex – gold, silver, platinum, and palladium – has gone nowhere for the past few years.
Yet I can’t overlook the resilience of gold and silver as interest rates and the US dollar rise – two significant headwinds for these shiny rocks.
Perhaps they deserve the benefit of the doubt.
I believe they do.
But extending these lackluster metals with a favorable outlook does not equate to taking a long position.
It’s far from it.
Price must prove buying precious metals offers a rewarding proposition.
The following two intermarket ratios will undoubtedly rise if and when it does.
I covered these ratio charts in late July as they neared key inflection points or critical former support levels.
Fast-forward to today, and both are bouncing higher after posting fresh lows.
Check out the Gold Miners ETF $GDX versus the S&P 500 ETF $SPY:
Now is the time, and the shelf of former lows marks the place for gold miners to assume a leadership role.
That was the message in late July.
And it’s the same message today – with one key difference: GDX shows signs of life, or relative strength.
Mining stocks must outperform the broader market to create sufficient bullish conviction. Otherwise, any additional attempt at new all-time highs for gold will fail.
Silver Miners $SIL will also outperform Silver $SLV if a true risk-on event hits precious metals:
The SIL/SLV ratio has stopped falling, reclaiming its 2016 low last week.
These risk-on ratios have plenty of work to do. But they have to start somewhere.
Gold has dazzled with moments of brilliance, retesting former highs earlier this spring.
A new all-time high will come. But it won’t happen until these risk-on ratios rise.
In fact, gold will not only represent an opportunity cost but will signify downside risk if and when GDX-to-SPY and SIL-to-SLV break down to fresh decade-lows.
I’ll continue to track these critical ratios for insight into gold’s next move.
