The market is punishing investors for owning gold mining stocks.
Sure, a handful of gold miners are holding above key levels.
Buenaventura S.A.A. $BVN, Orla Mining $ORLA, and Harmony Gold $HMY belong to this elite group of outperformers.
But that’s about it.
I’m not giving these trades too much room. And I’m not piling into new long positions. Not yet!
Here’s why…
Gold mining stocks continue to print fresh lows versus the broader market.
Check out the VanEck Gold Miners ETF $GDX relative to the S&P 500 ETF $SPY:
Since its inception in 2006, GDX has never traded at this much of a discount to the S&P 500. This is the exact opposite of what we would see if gold and other precious metals were in an uptrend.
The strongest trending assets outperform their alternatives.
On the other hand, precious metals are exhibiting relative weakness – a clear sign of a severe downtrend.
Investors are more interested in buying NVIDIA Corp. $NVDA and Super Micro Computer $SMCI.
No one wants to own shares of companies that dig in the dirt for shiny yellow rocks. I don’t blame them.
Of course, this will have to change before gold mining stocks register a buy.
The GDX/SPY ratio doesn’t have to hit a new multi-year high. It just needs to start trending higher or, at the very least, stop falling.
GDX relative to the SPDR’s Gold Shares ETF $GLD posting fresh three-year lows adds fuel to this dumpster fire:
Investors would rather own the rocks themselves.
That’s risk-off behavior!
Fear drives buyers to reach for the physical metal for one critical reason: It’s easier to bury in the backyard.
On the flip side, investors prefer precious metals stocks over rocks when the uptrend in gold is swinging. Gold mining names provide gargantuan returns during secular bull markets. (Why do you think JC used to be a gold bug?)
But that’s not what we’re dealing with today.
Notice the Silver Miners ETF $SIL is breaking to new decade-lows versus the iShares Silver ETF $SLV:
That’s the type of environment we’re navigating. It’s the same story as the gold miners-to-gold ratio, just one step further out on the risk curve.
Money flows to where it’s treated best. Why should we allocate capital to a market area that continues to print fresh relative lows?
I wouldn’t – not until the above relative trends reverse higher.
Plus, I’m not too excited to see sector bellwether Newmont Mining $NEM undercutting its 2020 low:
Fresh multi-year lows are not a characteristic of an uptrend – on any time frame.
I highlighted the bullish momentum divergence on the 14-day RSI. But I’m not impressed.
NEM will eventually turn it around, and it will likely begin with some sort of momentum swing into the bull’s court. Unfortunately, the stock has dug itself quite the hole.
Better gold mining names exist – Buenaventura S.A.A., Orla Mining, and Harmony Gold, to name a few. These are the names I will lean into when the rest of the space begins to revert higher.
For now, it’s less about leaning in and more about stepping back.
