Thursday, March 29, 2012

Buy the Gold Stocks

It has been a brutal six months for owners of the gold miners with the sector losing about 26 per cent, about double the 12 per cent loss for bullion over the same time window.

From a technical prospective I believe the worst is over for the gold miners

Our chart is the weekly closes of the Market Vectors Junior Gold Miners (NASDAQ-GDXJ) plotted above the weekly closes of the Market Vectors Gold Miners ETF (GDX)
The GDXJ is a basket of junior gold miners such as B2Gold Corp. (BTO), and the GDX is a basket of large cap gold miners such as Barrick Gold Corporation (ABX).

Because both plots represent a basket of diverse gold stocks one could assume they would be somewhat identical. What a technical analyst is looking for here is some form of price divergence between the larger gold miners and the smaller gold miners. The divergence will occur when one line makes a new high and the second line turns lower just before it posts a new high. This is called negative divergence or a bearish setup which occurred between the small cap GDXJ and the large cap GDX in late 2010 and early 2011. Note the failure of the upper plot to follow the lower plot to a new high.

It was this bearish set up that signalled the pending nasty twelve month bear in the gold miners.

Now there is positive divergence or a bullish setup condition which is now occurring between the small cap GDXJ and the large cap GDX. Note the failure of the upper plot to follow the lower plot to a new low. We now have bullish set up that could signal a pending bull market in the gold miners. Good news for the gold bugs and those nervous portfolio managers.


Piazzi said...


any opinion on Canadian insurers (the big three MFC, SLF, GWO)

if interest rates are bottom or near bottom, these guys may be bottom or near bottom as well

Piazzi said...

Great observation on junior/senior divergence

which one would you prefer?

Now, only if miners could outperform the metal said...

Hello Piazzi

On the gold miners – I would buy the juniors because there could be some consolidation in the group as the big guys look to buy reserves on the cheap

On the lifeco’s – all look good with Manulife lagging SLF and GWO so I would favour MFC

Bill Carrigan

Piazzi said...

Thanks Bill

Yes I was thinking a rotation from GWO to MFC

Many, many thanks for sharing your take -- much appreciated

Anonymous said...

Bill: I have a diverse set of (25) higher dividend paying stocks which I started investing in early Dec 2011. As of April 4 most of the paper gains have been wiped out. The recent market slide I hope is temporary, not 2008 all over again. Can you comment ? Mark