Over the past week, we've seen gold shares gain sponsorship without the physical gold metal rising. Perhaps this was the "canary in the coal mine" as they say, but gold prices roared ahead yesterday from a low of $1545 to a high of $1632 before closing at $1627. This put in place a rather bullish key reversal higher from major support between $1500-to-$1550. We find this rather positive for further gains, which many would equate to some level of European/US/Chinese liquidity measures.
But what we find more interesting is the fact that the Gold Share/Gold Futures Ratio (GDX/$GOLD) nearly reached the lows it formed in October-2008 at roughly .25. Thereafter, a rather spirited rally began to the benefit of GDX; and we look for the same type of run to develop at this point. Clearly the 30-week stochastics of the ratio is at oversold levels; and also confirming this is the longer-dated 21-week RSI that hit oversold. The last time the 21-week hit oversold, then the aforementioned spirited rally began.
Hence, we believe we are in the nascent stages of a bullish run in gold and gold shares, with gold shares taking the lead. We are buyers of gold shares on weakness; and look to be involved in the trade for many months. Stop losses can put placed at the recent lows or a bit higher.
Good luck and good trading,
Richard
