From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Gold looks like it’s ready to run.
The largest gold miner in the world, Newmont Mining Corp. $NEM, has broken out of a multi-year base.
Silver and platinum have dug in at critical support levels and are catching higher.
And, most importantly, gold is in the process of reclaiming its former all-time highs from summer 2020.
These are all bullish developments, suggesting gold — and precious metals more broadly — are ready to join in on the party that most commodities have been enjoying for more than a year.
Last month, gold broke above its former 2011 highs near 1,924. Here’s a zoomed-out view of the chart:
Now that we are back above this key peak from the previous commodity supercycle, it’s time to bet on a fresh leg higher for the shiny metal.
Seeing gold push back above its prior cycle highs and begin to participate is incredibly constructive for the entire commodity space and supports our thesis that this bull market still has plenty of legs.
As long as it’s above those former highs, we have a bullish bias with the understanding we’re still in choppy waters if it’s below the all-time highs from 2020.
With that said, if we’re above 1,925 we want to be long with an initial target of 2,467.
When we look around the world at gold priced in other currencies, it’s already printing fresh all-time highs:
Gold priced in yen and euros recently reached its highest levels in history. And gold in British pounds is on the verge of doing the same.
This is another bullish development, and we see no reason why gold futures priced in USD shouldn’t follow.
But are investors reaching for risk when it comes to these shiny rocks?
Here are a couple of our favorite risk gauges within the precious metals space, gold miners relative to gold, $GDX/GLD, and silver relative to gold, $SLV/$GLD:
These two charts look almost identical, with similar peaks and troughs, because they both measure market participants’ willingness to take on excess risk within the space.
Silver is the high-beta, crazy cousin of the precious metals family. When it’s outperforming, gold investors are turning up the heat to take advantage of rising prices.
The same can be said of the GDX/GLD ratio.
Investors pile into highly volatile mining stocks to increase their beta and ride the trend higher with an elevated degree of risk than they’d otherwise have if they just owned spot gold.
For now, we’re keeping our eyes on those former 2011 highs, gold priced in other major currencies, and signs of increasing risk appetite.
So far, both risk ratios have stopped going down with GDX s,howing early indications of relative strength. That’s a great start.
We want to see both ratios catch higher, as this will ultimately confirm the bullish developments we just discussed.
Long story short, finally getting outperformance from silver and the miners will tell us that the animal spirits are alive and well in the precious metals complex and that this is likely the start of a trend that will last for years to come.
And be sure to check out our COT heatmap and weekly trade idea from our natural resources and commodity-related scans below.
COT Heatmap Highlights
- US Dollar: Commercials continue to unwind their net short position, reducing their exposure by 5,921 contracts.
- Soybean Meal: Commercial hedgers added another 9,068 contracts to their largest net short position in three years.
- Coffee: The unwind is underway, as commercials cut their shorts by more than 12,000 contracts last week.
- Feeder Cattle: Commercial hedgers are less than 10% away from their largest net long position in three years.
Click here to download the All Star Charts COT Heatmap.
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