Gold stocks failed to breakout in the spring and then broke down to multi-year lows by September. As autumn beckons, the precious metals sector at large is very oversold and could be starting a rebound.
However, the fundamentals are not yet in place for a new bull market. They will be when the Fed moves to the end of this rate hike cycle. Although gold stocks and most commodity stocks are mired in downtrends, that isn’t the case for uranium stocks which appear to be on the cusp of a new bull market.
According to Trade Tech, the spot price of uranium is $27.70/lb which is a two and a half year high. The price has begun to rise after basing for several years.
In recent months, the announcement of production cuts from the world’s largest uranium producers (Kazatomprom and Cameco (NYSE:CCJ)) along with the Section 232 investigation into uranium imports has contributed to the recent price rise in both the commodity and the shares. Below we plot a capitalization-weighted uranium stock basket which consists of 11 junior uranium companies.
The basket, which closed yesterday near 95, is trading above all of the major moving averages but needs to close above 98 to make a new 52-week high. A weekly close above 115 would mark a major breakout and put the index at a 4-year high.
At the top of the chart we plot the uranium index against VanEck Vectors Junior Gold Miners (NYSE:GDXJ). It’s uranium juniors against gold juniors and uranium is winning. The ratio closed last week at more than a two and a half year high.
Turning to the gold stocks, we see a rebound could be underway. The gold stocks have been extremely oversold and last week started to rebound as they approached very strong support levels. Potential upside targets are VanEck Vectors Gold Miners (NYSE:GDX) $20-$20.50 and GDXJ $30-$30.50.
The gold stocks are setup for a rally but one should not confuse a relief rally with a new bull market. The fundamentals are not in place for such. At least not yet.
As for uranium, the fundamentals appear to be favorable and recent price action could put the sector in position for a big winter and 2019.