Gold’s demand is highest in three years but supply is highest in seven. It bottomed in November 2016 and is on a short upswing since then. Gold ETF, GLD, is doing slightly better than SPDR S&P 500, SPY, the gold miners ETF, GDX, is doing better than GLD and the gold junior miners ETF, GDXJ, is doing better than GDX.

Fundamental Picture

Gold Demand Highest In Three Years, Supply Highest in Seven

According to World Gold Council, the demand for gold – at 4308.7 t – reached a 3-year high in 2016. The big gainers were gold ETFs. At 531.9t, the annual demand for ETFs was second highest. However, the gold purchases be Central Banks and demand for gold jewellery declined.

In 2016 the gold mine production was flat but the total supply grew by %, due to growth in recycled gold and net producer hedging. Also, the gold exploration increased in 2016.

The 4-quarter average of gold demand has been generally trending down since early 2013 (Chart 1). On the other hand, the 4-quarter average of supply is trending up slightly. The net result is that the downward pressure on the price continues despite 8% rise in 2016.

Inflation Ticking Up, Will Gold Follow?

The consumer price index in the U.S. is trending up since February 2015 and the gold spot price since November 2015.

The gold is generally used as an inflation hedge. During the time from July 2009 to September 2011, when the consumer price index rose from -1.96% to 3.01%, the gold price generally rose (Chart 2).

The correlation between these two exists but the movement in not always in straight line. The current trend of CPI is up, which means that gold will face up pressure.

Technical Assessment

Gold In Downtrend On Monthly Timeframe

In August 1976, gold bottomed at 101.50 before starting on a big rally that culminated at 873.00 in January 1980. On monthly timeframe, the precious metal made a long upper shadow and despite a large green body, it was a reversal pattern, which was more visible in shorter timeframes.

Following that 4-year and 760% rise, gold slumped for next twenty year and bottomed at 253.00 in August 1999. This 20-year slump included few rallies that did not rise above previous highs and the subsequent declines took the price to news lows.

Gold then made a double bottom pattern in March 2001 and broke above a long-term downtrend line in May 2002. Before making a double bottom, it had tried to rally but faltered just below the downtrend line in October 1999.

The rally after the double bottom lasted till September 2011 and gained 660%. In 1970’s gold rally gained 619.80 points and in 2000’s it gained 1670.40, or 270% of the ’70’s rally.

Gold has been in a downtrend – on monthly timeframe – since 2011. It bottomed in November 2015 at 1051.10, which is near the resistance zone created by the high of March 2008 (1033.90) and the low of February 2010 (1044.50). It’s first attempt to break above the downtrend line failed in August 2016 at 1374.20.

Gold Range Bound on Weekly Timeframe

On weekly timeframe, gold is in a trading range but making patterns that have bullish connotations.

In the week of November 30 2016, gold made a low of 1045.40, which was quite close to the low of February 1 2010, 1044.50 (Chart 4). The bounce off the 2016 low failed near the highs of March 7 2014 and the downtrend line. This is forming a horizontal trading box. A break above downtrend line – 1300.00 levels – and the upper limit of box, near 1376.50, will have potential to gain nearly 300 points.

A Short Term Uptrend on Daily Timeframe

On daily timeframe, gold has made higher high and higher lows since December 2016 (Chart 5).

In 2015, from March till July, gold traded in a range. The upper zone of the range acted as a resistance in August and October later in 2015. The precious metal broke above trading range in February 2016.

The upper zone of 2015 range, then became the support in March 2016 and May 2016. In November 2016, gold broke below the 2015 and then crossed above it mid-January 2017. The upper zone of the 2015 range, again, acted as a support when the metal pulled back in late-January.

Relative Strength

Junior Gold Miners Outperforming

Gold is on a short upswing since bottoming in November 2016. This is reflected in gold and related ETFs.

The SPDR Gold Shares, GLD, has been in downtrend relative to SPDR S&P 500, SPY, since 2011. Their ratio, GLD/SPY, rallied from late 2015 to early 2016 (Chart 6). It then was range bound for most 2016, which means they produced similar returns. In late 2016, GLD deteriorated compared to SPY before improving somewhat since November 2016.

Gold miners, GDX (Chart 7), and junior miners, GDXJ (Chart 8), tracked the performance of GLD relative to SPY for mot of the period since 2011. They started to diverge after the bottom of 2015. In 2016, they appreciated more than GLD and out performed SPY for most of the year. They, also, did not fall as much as GLD. Their ratio with SPY has resumed the uptrend after breaking above the downtrend line.

Junior gold miners are doing better than both, the gold miners and GLD. Gold Futures bottomed during the week of November 30 2015, GLD during the week of December 14 2015 and GDX and GDXJ during the week of January 18 2016.

GDXJ underperformed GDX during the gold’s downtrend from 2011 to early 2015 when their ratio, GDXJ/GDX, bottomed and then stayed flat till early summer (Chart 10). Since then, GDXJ has, mostly, outperformed GDX, even though both continued their decline till early 2016.

GDXJ has outperformed GDX since May 2015 and GLD since early January 2016. The trend of the ratio, GDXJ/GDX, has generally been up, with small pullbacks, when GDX did better, since mid-January 2016.

The ratio, GDXJ/GDX, formed an uneven inverse Head-&-Shoulder pattern. In early 2017, the ratio broke above the neck line. This means that the junior gold miners are poised to outperform gold miners, which are doing better than GLD.

Top Performing Gold Miners

The three major holdings of GDX that are doing better than the parent ETF are Barrick Gold Corporation, Newmont Mining Corporation and Agnico Eagle Mines Limited. Two of these miners, Barrick Gold and Agnico Eagle Mines are based in Canada and are foreign ADRs.

Barrick Gold Corporation (ABX)

Barrick started to outperform the gold miners ETF, GDX, in October 2015 (Chart 11). It did worse than the parent ETF in the middle of 201 before resuming the trend in late September.

ABX gapped down on April 15 2013, which created a strong resistance zone. The upper limit of the gap is 22.58 and lower limit 21.26. Barrick bottomed in September 21 2015 at 5.91 and then rallied till July 2016. It faltered at 23.47 in the resistance zone. The stock then made a down-sloping flag till mid-December 2016.

ABX broke above the flag in early January 2017 and a less steep downtrend line in early February. It closed at 19.32 on February 15 and the next resistance is the July 2016 high of 23.47, which is 21.5% higher.

On weekly timeframe, ABX is forming an uneven inverse head-and-shoulder pattern. The neck line break is between 21.70 and 23.47. The height of the pattern is 15.50 to 17.50. The target would be between 37.50 to 41.00 if the price breaks above the neck line.

Newmont Mining Corporation (NEM)

Newmont Mining is outperforming GDX since early 2014 (Chart 12), with few periods when it did not.

Like ABX, it too gapped down in April 2013 but, unlike ABX, it filled that gap in June 2016. It found resistance between the July 2012 low of 42.95 and December 2012 high of 47.59.

After rising to 46.07 in August 2016, It too formed a down sloping flag, which was broken by the end of December.

On February 15, it closed at 37.03. The next resistance of 46.07, the 2016 high, is 24.4% higher. The resistance after that is near 57.93, the September 2012 high.

Agnico Eagle Mines Limited (AEM)

Agnico Eagle Mines started to outperform GDX in early 2012 and the trend of their ratio is much steeper (Chart 13).

AEM was in a trading range from March 2013 to April 2016. The upper resistance was created near 42.41 the 2014 high. The lower limit is formed between 23.77, 2013 low and 21.00, the 2015 low. The height of the channel is 18.64-21.41 points.

In April 2016, AEM broke above the resistance and reached a of high o 60.10 in August 2016, thus effectively reaching the 100% extension target of the pattern. After that it declined to he low of 35.05 by mid-December, forming a down-sloping flag.

In February, AEM broke above the flag. On February 15, it closed at 49.42. Next resistance is at 60.10, which is 21.6% away. The height of the move before the flag is 39.10. A break above 60.10, will bring the target of 74.15 in relevance. This will be in a resistance zone between 73.09, the high of September 2011 and 76.49, the high of February 2011.

Top Performing Junior God Miners

The top holdings of GDXJ that are doing better than the ETF are B2Gold Corp., Pretium Resources Inc., Kirkland Lake Gold Ltd and Endeavour Mining Corp.. All four are Canada based but only two are foreign ADRs, B2Gold and Pretium. Other two are on Toronto Stock Exchange.

B2Gold Corp. (BTG)

B2Gold Corp, BTG, started trading in the U.S.A. in October 2011. It was in a downtrend till January 2016, which it made a bottom (Chart 14).

Before the bottom in early 2016, BTG was underperforming the GDXJ. After that started to better.

In August, BTG, made a high of 3.65, which was near in the resistance zone created near he August 2013 high of 3.58. After finding resistance at that level, it pulled back to 2.02 by mid-December 2016. BTG is again nearing 3.65. The emerging patterns is quite similar to a cup-with-handle pattern.

The three reversal points – low of 0.60 in January 25 1016, high of 3.65 in August  8 2016 and low of 2.02 in December 12 2016 – form the ABC of an ABCD pattern. The 100% extension target of this pattern is near 5.07, which is 49.6% away from the February 15 close of 3.38.

Pretium Resources Inc. (PVG)

Pretium Resources, PVG, also started trading in the U.S.A. in October 2011. It bottomed at 2.70 in November 2013 (Chart 15). It then rallied to 8.85 by July 2014.

PVG outperformed GDXJ from late 2014 to October 2015. It performed worse than GDXJ till February 2016 Since then it has mostly outperformed the parent ETF.

From then till May 2016, PVG formed two patterns. One a descending triangle and other a horizontal trading range. It broke out of triangle in April 2016 and broke out of rectangle range in June 2016. The rally stopped at 12.41 in July 2016.

The 100% extension target of the triangle is 10.94, which PVG reached in June 2016. The 161.8% extension target is 13.89, which is also near the 100% extension target, 13.63, of the rectangle box. These targets are 22.8% and 20.5% away from February 15 close of 11.31.

From July to January, PVG formed a down sloping flag. The move before the flag started from a low of 4.00 in January 2016. The total height of the move is 8.41. The low point of the flag,6.82, was in December 20 2016. The 61.8% extension target of the flag is 12.02 and the 100% extension target is 15.23. These two targets are 6.3% and 34.7% away from February 15 closing price.

Kirkland Lake Gold Ltd (KL – TSE)

Kirkland Lake Gold Ltd., KL-TSE, has been on an uptrend since July 2015. During most this time it has outperformed GDXJ (Chart 16).

KL-TSE has broken above the previous high of 10.67 reached during the week of September 10 2016. From September to December 2016, it formed a down-sloping flag.

In early January, Kirkland Lake Gold broke above the flag. The move before the flag, i.e. the pole, started at the low of   2.67 in December 2015. The height of the pole is 8.00. The low point of the flag is 8.33. The 61.8% extension target is 13.27 and the 100% extension target is 16.33. These targets are 17.4% and 44.4% away from February 15 closing price of 10.29.

Endeavour Mining Corp. (EDV – TSE)

Endeavour Mining Corp., EDV-TSE, was in a horizontal trading range from April 2013 to April 2016. From April 2013 to April 2015, its performance was relatively equal to that of GDXJ.

EDV-TSE started to outperform GDXJ in May 2015 and broke out of the horizontal trading range one year later in May 2016.

The height of the range is approximately 6.40 – from a low of 3.80 reached in December 2014 to a high of 10.20 reached in March 2014. The 100% extension target is near 16.60, 161.8% target near 20.56 and the 261.8% target is near 26.96. By September 2016, EDV-TSE had achieved these target.

The September 2016 high is near the resistance level created at 27.40, high of December 2011. Resistance above this at 31.30, the high of November 2010.

From early June 2016 to late January 2017, EDV-TSE was in an another horizontal trading range. The upper limit is bounded by 26.38, August 2 2016 high, and the lower limit by 19.20, September 1 2016 low. The 61.8% extension target of the channel is near 30.82 and 100% extension target is near 33.56. These are 29.1% and 40.5% away from February 15 closing price of 23.88.