Gold is Shining Again

Figure 1: Gold Futures (Monthly)

Figure 2: Gold Shares SPDR – GLD (Monthly)

Gold is on the rise. There are many fundamental factors that are favoring it. The US Dollar is soft, the Coronavirus pandemic has ignited the fears of a global economic recession and the global interest rates are low. No wonder gold is trying to reclaim its previous high levels.

Technical charts are also painting a bullish picture for the yellow metal. It has climbed above 78.6% Fibonacci Retracement level of its decline from all time high of 1923.70 in September 2011 to the low of 1051.10 in November 2015 (see Figure 1). In mid-April 2020, it is at the highest level since October 2012. The high of that month was 1798.10, which is just 10 points above the high reached on April 14.

In June 2019, gold broke above a multi-month chart pattern that could be termed as ascending triangle at best or an uneven inverse head-and-shoulder pattern at worse. The 100% extension target of these patterns, near 1709.60, is already achieved. The next target is 161.8% extension, which is near 1915.00 level.
The Gold Shares SPDR (GLD) is also tracking the gold futures charts. However, it still has not reached the 78.6% Fibonacci Retracement level and is also quite below its October 2012 high.

In June 2019, GLD also broke above bullish chart pattern, which is more like a symmetrical triangle (see Figure 2). The 100% extension target of this pattern, near 161.80 is achieved. The 161.8% extension target is near 182.50, which is near the all time high reached in September 2011.

Gold Miners Also Seem To Be Breaking Out

Figure 3: Gold Miners Relative Strength (Weekly)

Figure 4: Junior Gold Miners (Weekly)

Rising gold is usually a good sign for gold miners too. The VanEck Gold Miners ETF (GDX) is trading at the highest levels since April 2013 after breaking above the resistance near 31.798 created in August 2016.

In February and March it declined sharply after the Coronavirus induced lockdown and reached the lows last made in early 2016. However, gold did not decline so gold miners bounced up nicely and better than S&P 500 (see Figure 3). The ratio of GDX with SPX, i.e. its relative strength, has been mostly trending up since late Q3 2019 and the ETF is breaking above multi-year trading range.

The VanEck Junior Gold Miners ETF (GDXJ), however, hasn’t done as well as GDX. Although it has also recovered most of its decline due to the pandemic response, it hasn’t risen above February 2020 highs (see Figure 4). Its performance relative to S&P 500 is weak though its ratio is breaking above a downtrend line. If the ratio breaks above then GDXJ would start to outperform S&P 500.