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Mining Stocks: A House Built On Shaky Ground

By Sunshine Profits (Przemyslaw Radomski, CFA)CommoditiesApr 08, 2021 11:36AM ET
www.investing.com/analysis/mining-stocks-a-house-built-on-shaky-ground-200571983
Mining Stocks: A House Built On Shaky Ground
By Sunshine Profits (Przemyslaw Radomski, CFA)   |  Apr 08, 2021 11:36AM ET
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It’s tempting to say that miners are showing strength compared to gold based on the VanEck Vectors Gold Miners ETF's (NYSE:GDX) performance, but other mining proxies say otherwise.

Just because a house is standing doesn't mean its foundations are solid, and that's exactly the case with the miners.

There’s one extra thing that I would like to point out about mining stocks’ technical picture today (April 8), and that’s their performance relative to gold.

GDX ETF Daily Chart.
GDX ETF Daily Chart.

Some investors might say that mining stocks are showing strength compared with gold as the GDX-to-gold ratio broke above its declining resistance line.

However, I don’t think it’s fair to say so. I think that seeing a breakout in the GDX-to-gold ratio is not enough for one to say that the miners-to-gold ratio is breaking higher.

After all, the GDX ETF is just one proxy for mining stocks, and if miners were really showing strength here, one should also see it in the case of other proxies for the mining stocks when compared to gold.

For instance, the HUI Index-to-gold ratio, the XAU Index-to-gold ratio, and the VanEck Vectors Junior Gold Miners ETF (NYSE:GDXJ) ( junior mining stocks ) to gold ratio.

HUI-Gold Ratio Daily Chart.
HUI-Gold Ratio Daily Chart.

There is no breakout in the HUI-to-gold ratio whatsoever. In fact, the ratio is quite far from its declining resistance line. Even if we chose other late-2020 tops to draw this line, there would still be no breakout.

XAU-Gold Ratio Daily Chart.
XAU-Gold Ratio Daily Chart.

There is no breakout in the XAU-to-gold ratio either. The previous attempts for the XAU-to-gold ratio to rally above their 2020 high marked great shorting opportunities, which is very far from being a bullish implication.

But the most bearish implication comes from gold’s ratio with another ETF – the VanEck Vectors Junior Gold Miners ETF (NYSE:GDXJ).

GDXJ-Gold Ratio Daily Chart.
GDXJ-Gold Ratio Daily Chart.

The GDXJ-to-gold ratio actually provides a sell signal, as the tiny breakout above the declining resistance line was already invalidated.

Five out of five previous attempts to break above the declining resistance line failed and were followed by short-term declines. Is this time really different?

It seems to me that the five out of five efficiency in the GDXJ-to-gold ratio is more important than a single breakout in the GDX-to-gold ratio, especially considering that it was preceded by a similar breakout in mid-March. That breakout failed and was followed by declines.

Taking all four proxies into account, it seems that the implications are rather neutral to bearish. Especially when taking into account another major ratio - the one between ARCA Gold BUGS and S&P 500 is after a major, confirmed breakdown.

HUI-SPX Ratio Weekly Chart.
HUI-SPX Ratio Weekly Chart.

All in all, the implications of mining stocks’ relative performance to gold and the general stock market are currently bearish.

Mining Stocks: A House Built On Shaky Ground
 

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Mining Stocks: A House Built On Shaky Ground

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Comments (12)
Erikas Ivan
Erikas Ivan Apr 09, 2021 5:28AM ET
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Indeed, I wouldn't rush with miners' strength either without evaluating each proxy!
Dave Jones
Dave Jones Apr 08, 2021 4:44PM ET
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let's hope they tank eh?
Mehdi Captain Music
Mehdi Captain Music Apr 08, 2021 4:27PM ET
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I’m confused!To whom does the Fed owe debt?!Everything is rising higher, but the dollar is joking!Gold is struggling!
Kevin McCarthy
Kevin McCarthy Apr 08, 2021 4:27PM ET
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the FED doesn't owe... we owe the FED.
Mehdi Captain Music
Mehdi Captain Music Apr 08, 2021 4:27PM ET
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Kevin McCarthy how long it takes?
Mehdi Captain Music
Mehdi Captain Music Apr 08, 2021 4:25PM ET
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“Please don’t judge anyone”Everyone shares information here, it’s us to find out the puzzle.All analysts are respected.
MK MK
MK MK Apr 08, 2021 3:53PM ET
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Silly yankies try to fool the world again. You will pay much more for food and other materiał goods. You did not earn any "stimulus", just try to robber other nations
Pilot TwoFive
Pilot TwoFive Apr 08, 2021 3:53PM ET
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Really, which ones so we can "robber" them again?
LUCIANO GIUDICE
LUCIANO GIUDICE Apr 08, 2021 3:52PM ET
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I read it a little then half way ...I lost the will to live. How can someone come up with all this graph comparison just to make a point . This guy surely has an agenda. Never been a better time to buy mining stocks. On the contrary gold value is been undermined by crypto and is likely going lower and lower. Basic metal, EV metals and rare earth metal are the future.
Pilot TwoFive
Pilot TwoFive Apr 08, 2021 3:52PM ET
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Yep, it's a clear desire to make a case when the case is against you.  Price action stipulates Gold above 1760 is a major break of resistance and potential to move higher outweighs his slight of hand.  I don't know where these authors are found but it seems like most of them have never traded a day in their lives.
Felipe Daniel
Felipe Daniel Apr 08, 2021 3:22PM ET
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This guy has written misleading reports before
Dwain Hobbs
Dwain Hobbs Apr 08, 2021 2:21PM ET
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The trade thats proving 100% success is buying PMs and miners the day this joker posts his bearish comments ,, 24 hour guaranteed profit ,, not joking , just check all his comments date and the chart day after ,, magical !
Jan Buyle
Jan Buyle Apr 08, 2021 1:33PM ET
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PE's of 10 or less and operational margins of +40% are shaking ground? Joker!
Дмитрий Сильвестров
Дмитрий Сильвестров Apr 08, 2021 1:33PM ET
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If the ground is price perfomance of gold, than yes, mining stocks have shaky groundThis analyst is one, who has predicted $1680 in gold, while other wuffling investors supported their fantasy prices above 2000,2300,3000, 20000.So, you are a bit wrong saying Joker
Jan Buyle
Jan Buyle Apr 08, 2021 1:33PM ET
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Дмитрий Сильвестров  Sorry, this analyst predicted $900 gold last April... How wrong can you be? He missed the price by 100%   !!
hari sharma
hari sharma Apr 08, 2021 1:28PM ET
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pls reply
hari sharma
hari sharma Apr 08, 2021 1:28PM ET
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pls reply
hari sharma
hari sharma Apr 08, 2021 1:27PM ET
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sir how much gold dollar can go maximum
 
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