From the Desk of Ian Culley @IanCulley
Precious metals might be the most straightforward trade on the sheets right now.
Gold is 10 bucks away from a new all-time high. Silver and platinum are holding above critical breakout levels. And mining stocks are ripping.
Close your eyes and take a swing. You’re bound to hit a winner.
But your odds of success (and potential payout) improve if you forego shiny rocks in favor of buying gold and silver mining stocks.
Check out the Gold Miners $GDX breaking out relative to the Physical Gold Trust ETF $GLD:
GDX outperforming GLD speaks to risk-seeking behavior – a bullish environment for mining stocks and physical metals.
No wonder Alamos Gold $AGI, Eldorado Gold $EGO, and Kinross Gold $KGC are posting fresh multi-year highs. The most resilient trends outperform their alternatives – just like the Gold Miners ETF in the above chart.
Meanwhile, the laggards refuse to break down. Even Newfound Gold $NFGC – fresh off all-time lows – has rallied more than 23% over the trailing two weeks.
It’s a bull market, ya’ know!
If gold futures hitting new all-time highs doesn’t suffice, gold mining stocks taking the lead legitimizes a bull run in precious metals:
Notice that explosive GDX-to-GLD rallies accompanied the 2016 and 2020 markup phases in gold.
Let’s take one step further out on the risk spectrum with gold’s crazy cousin — the Silver Miners $SIL versus the Silver ETF $SLV:
The SIL-to-SLV ratio hasn’t broken out of a similar bearish-to-bullish reversal, but I wouldn’t expect its base breakout to precede a GDX/GLD bullish reversal.
Think of these risk-on ratios in terms of breadth analysis.
We witness an expansion in 63-day highs before an uptick in 52-week highs. And before the number of new 63-day highs catches our eye, we notice a jump in shorter time frames such as 21 days.
It’s basic math.
Uptrends also build upon themselves, as strength begets strength supported by money flowing to where it’s treated best.
Today, I’ll highlight two trade setups from our precious metal mining stock universe.
Here we go!
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