Do Miners Need to Lead the Metals?
It’s a common misconception that miners always lead the metals sector. As you can see in this chart the miners often produce false signals.
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Much appreciated!
No its not appreciated. What Gary is saying up above is you should fight the tape.
Good luck with that.
Why not you’ve been fighting the tape for months …. I know I know keep Saying it eventually you’ll be right … good luck with that .
Indeed.
I am not sure that is helpful Gary because its hardly conclusive and will probably cause some people to go astray. Are you trying to suggest here that mining stock being in decline at this time is not an indicator buyers should be concerned about because sometimes there are false signals?
Probably we should dispense with the term “leading” and that might help clear things up a little. I actually prefer to use the word “divergence” because I think its more accurate in conveying the idea of what we need to watch for in gold market behavior.
Have a look at the linked chart from Yahoo for the period of January 25 to present. You can see better what I was talking about yesterday in my post about divergences. Visually it makes a much better case than one I can write in words.
So be careful here. Mining stock is indeed heading in a different direction and will most likely be leading and gold should follow soon by falling in its wake. Ignore this divergence at your peril.
https://finance.yahoo.com/chart/GLD#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
Ignore chart above as it does not post correctly for me.
Instead just use your own charting software and compare GLD and GDX.
You should readily see where the price divergences occur.
Thanks, but I will ignore you completely as you have been consistently wrong and Gary has been right. Gary is making money and you are losing money. Yes, this could change but Gary’s documented, profitable advice carries more weight with me anyway.
It’s good to have opposing views for sure, and I am glad to see you have dialled back in your cocksure attitude a little.
You should post a picture of your chart as it would be easier for others to clearly understand what you mean.
So just to be clear you are ignoring me personally without regard to what was written and you will therefore give no consideration to divergences in the future based on your belief I am probably incorrect about everything?
Fascinating. Its no wonder gold bugs keep getting squashed.
Some of you people are incapable of learning anything new, preferring guru worship over knowledge. All the best to you Hamish but if you choose to ignore a well established technical concept based on a personality difference with another poster (me) you are probably heading for losses.
I will leave you with a brief on Divergences just in case it might help.
From Investopedia:
“In technical analysis, most indicators can give three different types of trading signals: crossing over a major signal line, crossing over a center line and indicator divergence.
Of these three signals, divergence is definitely the most complicated for the rookie trader. Divergence occurs when an indicator and the price of an asset are heading in opposite directions. Negative divergence happens when the price of a security is in an uptrend and a major indicator – such as the moving average convergence divergence (MACD), price rate of change (ROC) or relative strength index (RSI) – heads downward. Conversely, positive divergence occurs when the price is in a downtrend but an indicator starts to rise. These are usually reliable signs that the price of an asset may be reversing.
http://www.investopedia.com/terms/d/divergence.asp
A good article by Jordan Roy on gold versus mining stocks as they diverge is out today. You should all read it when you have time. There are a few handy charts included that make the point quite clear. Gold has better than even odds of following miners down than the other way around.
And where gold goes silver usually follows so don’t think one will be breaking from the pack and soaring as the other goes soft and limp.
Oh yeah, I know, I know….gold is just fabulous and can’t fail when there is so many political reasons for it to go up and blah, blah, blah but let me remind you gold really does not correlate well to political events except over the briefest time frames. So don’t hitch your horse to that kind of nonsense.
https://thedailygold.com/underperformance-in-gold-stocks-argues-for-interim-peak/#
Your proving yourself to br just as nutty as Mac lately…opinions one thing long drawn out comment I garuntee most just scroll right by … just as I do
A view from down Under
I don’t understand why all you people can’t see the obvious, Your president has announced that the Dodd Frank act of 2010 is going to be nullified. Its open house for banks of the creature of Jekyll island. If you don’t know of them you have no credence with me at all.
They have now an open house manipulation of the markets. If any of you are foolish enough to trade EFT’s and derivatives in this openly corrupt market you deserve what your get.
Temperature of ice cream goes up and the futures of a melt goes down and the futures of freezing goes up. Nothing like a fixed market.
Four days ago.
gold=1236 GLD was 117.29 Gold was 1236 Nugt=12.23 GDX= 24.36 nugt =12.23 Jdst= 13.6 dust=27.12
Today
gold=1258 GLD was 119.7 Gold was 1236 Nugt=11.26 GDX= 24.13 nugt =11.26 Jdst= 14.3 dust=28.16
What fools are you to be trading ETS & derivatives because they can manipulate them any way they choose completely irrationally with the way the market is supposed to move
Chaotic Market’s. Good luck with any rational predictions.
In my view the economic situation of the US is so fragile and challenging that every move is done with the utmost care and a lot of fear to do the wrong thing. The FED past policies are still in action and the scenario is the same. Though it may not last much longer for a change. The SM has gone too far.
As per playing the 3X funds, it depends on the way you think, if you think they are bad then they are bad, if you think they are good then they are good. It depends on how you play them.
Pedestrian,
Great post — I was trying to put the words together — “inconclusive”, that’s the word that was escaping me. Thanks for adding that 🙂
I guess it’s worth pointing out, Gary appears to be trying to reassure readers. And he does preface the whole post with, “It’s a common misconception that miners ALWAYS lead the metal sector.” Everything after that, I agree: Inconclusive.
Also, I believe “lead” is the correct term. GDX went after its 200 day SMA on Feb 1; gold on Feb 24. Far more leading than usual for GDX vis à vis gold.
More often, GDX tracks about a day, plus or minus a half day, ahead of gold, with the exception of market moving events and holidays, when GDX will play rapid catch up the morning of its next open. Gold is the driver, but it’s leading from the rear in terms of time. I guess you could say gold, the driver, is leading from the past. GDX is usually, but not always, the leader in time.
So we end up with two different notions of leading. Gary points out one, that of who gets to the yearly or intermediate top or bottom first. But the other is far more useful and telling on a daily basis — even when one of the two is in a holding pattern waiting 2 days (Jun 26-28, 2013) or 6 weeks (Dec 3, 2015 to Jan 18, 2016) or something in between for the other to catch up.
For instance, if GDX is often running 3x gold when the two are in sync, especially during strong trending moves, what does it mean for GDX to suddenly be running only 2x gold, consistently, during a holding pattern, such as February 1 to 24, 2017?
At that point, I would say, put the two different effects together, and conclude that one or the other is in a holding pattern around the time of an intermediate or yearly top or bottom. This time around, it’s GDX that’s waiting. A year ago, gold was waiting. On Jun 27, 2013, GDX moved sideways after bottoming on the 26th, until gold could complete it’s primary cycle low on the 28th. Then they exploded together, just like late January, 2015 (which was one degree higher: cycle degree).
Funny thing is, you are correct in your use of the word diverge: to move, lie, or extend in different directions from a common point; branch off.
But that’s not the same definition that traders use the term for — it’s not the one you quote from Investopedia.
You talk about GDX and gold diverging — I have linked the comparison chart that didn’t work in Yahoo. I have also substituted UGLD for GLD, to remove the effects of difference in volatility. That way, you can clearly see GDX and UGLD diverging, again, in the dictionary.com sense, not the investopedia.com sense: They are moving practically on top of one another, and then one moves one way, the other moves the other way.
Their paths diverge.
Finally, let’s forget not the Thai theme of elephant in the room 🙂
It is quite possible, and this is not the first time I’m mentioning it, that GDX has formed an intermediate top, and gold is forming an intermediate top. Just like on what I believe to be primary wave B down (the YC decline of 2016), where the first intemediate cycle ended on October 7, 2016, was followed by an intermediate rally to Nov 8, then an intermediate decline into the YCL on Dec 15. The first wave of intermediate degree was a test of the 200 day SMA.
As I’ve been stating here for quite a while, I’m looking for a similar move in the upward direction: A double zig zag or a zig zag. Either way, single or double zig zag, it’s a 3 wave move:
Intermediate rally followed by intermediate decline followed by intermediate rally to the YCH.
And I believe the most obvious target for the IC rally is the 200 day SMA.
Where else would it be?
I know you’re not familiar with these patterns. “You learn something new every day” — regardless of whether you’re on day 1,435 or day 12,869 or day 31,007 of your life 🙂
Some people have posted Jody Samuels’s Elliott Wave Course Modules on youtube. I highly recommend these, as they get right down to business, are clear, and to the point. You can also find Prechter’s 1987 video course on your favorite torrent site — it’s authoritative.
https://www.google.com/finance?chdnp=0&chdd=0&chds=1&chdv=1&chvs=Linear&chdeh=0&chfdeh=0&chdet=1488016809588&chddm=7820&chls=IntervalBasedLine&cmpto=NASDAQ:UGLD&cmptdms=0&q=NYSEARCA:GDX&&fct=big&ei=plWxWPH4EdHHe4uuj7gJ&authuser=0
Pedestrian,
How’s that for synchronicity? You post a link to the article, “Underperformance in Gold Stocks Argues for Interim Peak” at the same time as I’m writing the above post 🙂
One thing to note: Jordan Roy-Byrne is a technician; I am a scientist. We’re saying the same thing, albeit very differently.
Each has its strengths and weaknesses. On the strong side, technicians do not need science to be functional — hence the state of affairs in market forecasting. Astronomy technicians figured out some pretty funky math to show how the planets moved, back in the days when the Earth was the center of the universe, and everything moved in circles. Then came Copernicus.
The strength of scientists is, we provide the paradigms for quantum leaps.
Weakness of technicians: They’re not scientists. They emphasize functionality. Unless they are backed by science, their fundamental assumptions and ways of describing phenomena are inaccurate. But they have work-arounds for each inaccuracy. Like the loop dee loops that the planets used to make in the sky, back in the days when the Earth was the center of the universe.
Weakness of scientists: Not necessarily practical.
Scientists discover something, but need the engineers & the technicians to make practical use out of it. Then the practicality and the discoveries go on for centuries.
Technicians and engineers make great stuff and achieve practical success in their work. The better their underlying assumptions and the more accurate their beliefs reflect the nature of phenomena, the greater the stuff they will make, and the greater the success they will achieve.
( rolls eyes )
Thanks Zkotpen. Lots of food for thought (ignore Bill btw, he is always negative no matter what anyone says. Just his nature).
Significant buying of puts for GDX expiring next week, in the final hour of Friday’s trading. Strike prices were 23 and 23.50; Volumes 28,989 and 11,900, respectively.
Good morning,
Guys, I think there is clarity.
There is no question that because TIP broke out gold also is going up.
And gold is very, very bullish so next week is a big green candle, or no worst than a doji.
We knew from past action that gold is more responsive to TIP and miners to USD.
The decay of the miners since 2/8 coincides with the uprising of USD.
Thus the fate of the miners is still influenced by USD.
Further miners, GDX, uprising this year is comparable with last year uprising. So I am not alarmed.
The real question to address is whether USD will indeed have a right shoulder or continue up.
My take is that the momentum in gold is so strong that miners will not sink next week.
We need an specialist in forex for insights on USD, and that is Terrywg,
I come from a small town on the outskirts of Sydney which had the largest meatworks in Australia through the 50s,60s,70s.
I remember being told of how lambs were lead to the slaughter. Not by sheep dogs, but by a Judas sheep. Stressed sheep affected the quality of the meat.
They would put the sheep to be slaughter into a pen. Then they open a gate and from another gate introduce a trained sheep to lead the other sheep through the first open gate. A Judas Sheep who would because he was the first in , and recovered to do it all again.
After watching this website for a while I have concluded that we have more than a couple of Judas sheep working for outside parties.
A $10 mirror mirror on the wall call on the 18th Feb followed up by a “silver is about to dive off the high board call” or something like that. Prices have risen.
I feel I can trust Gary, but I am not sure that he knows the depth of whats going on.
Day traders could be about to be ripped off and then as they start to figure it out and reverse their positions be turned upside down to shake out the last pennies.
These are greedy buggers and the threat of retribution and consequence is about to be removed.
Good luck for you short term traders in the future. My god you’ll need it.
If there is safety it is for day traders. They do not carry overnight risk.
Other traders who hold overnight trades carry the risk specially if they play with individual, say miner stocks.
The risk on 3X leveraged funds, believe it or not is not terrible if you are actively managing them. As per the overnight risk it is mitigated by the fact that things do not happen instantaneously and you can sell them at the open of the pre session.
Goild
If the temperature of ice cream goes up, as a one day trader do you back the melt or the freeze.
LiesandDamnLies,
A good day trader follows the market, long or short, and at the end of the day has good profits.
The disadvantage is that the day trader cannot make as much money as a good swing trader.
The trade-off is the amount of risk each has.
Thanks
Your nothing answer has revealed which side you bat on. You and Ped may be on other teams but essentially batting for the same side.. Think of the poor sheep.
I would disagree that the miners XAU is lagging gold. They are about leveled.
Look at the GLD and XAU charts from 2013 to date.
As per the daily they are comparable to last year.
Gold is in a very strong trend to end likely at the election day high ~$1300.
And I would not be surprised if miners NUGT and JNUG would have a day with a +15%-+20% gain soon.
I take that Gold’s V uprising to the election day height will be a classical text book correction example.
As you can tell, I totally agree. I am the only person I’m aware of who has come out and said:
Oct 7 – Nov 9 in gold; Oct 11 to Nov 2 in GDX constitute rallies of INTERMEDIATE DEGREE.
There will certainly be a chapter on cycles analysis in the textbook, which will be totally revolutionized.
Of course, nobody reads textbooks. The only textbook I ever read cover to cover was The Goal, by Eliyahu M. Goldratt.
I like that format…
I don’t understand how some people do not believe gold is in a bull market when the bull is staring them right in the face and make a bunch of complicated theories to contradict what they can plainly see with their own eyes. I was very skeptical on Q4 but now it’s clear that gold is in a very strong uptrend. The miners will eventually get in line with gold, but I think they might have been set back because they reported earnings recently and their reports were not great because of the big dip in gold prices last quarter. A month or so from now the doubters will see the error of their ways. Of course, then it will be time for a correction and then they will start the bearish discourse again.
Based on what, Cazabrujas? Are we just going to say stuff now with no backing or support?
Make your case and I will listen to it.
The only support I need is the chart. Look at the trend for the past months. Look at the recent breakout from low volatility two days ago. That’s it. That is all you need.
Folks the only purpose of the post is to show that the miners don’t always lead the metal. There’s nothing more complicated than that.
I’m watching the divergence just like everyone else.
We have our stops in place. If they get triggered then I’ll re access and decide if I want to continue trading miners. It may be that it’s time to convert to just gold or silver. Or maybe it’s just not worth the headache if the market becomes bifurcated.
I may decide to just wait till the summer ICL before I want to play the sector anymore. We made an insane amount of money during this intermediate rally already. More than most people make in 5 years. We don’t have to keep trading this sector if it’s about to get difficult. We can take our money bag (a damn heavy one after this rally) and go home if we want to.
OK Gary. I can respect that. Sorry if I misunderstood your meaning.
Great response Gary! I think too much is being read into this divergence..I think miners will catch up in next couple trading days, IMHO. Couple 5% days and we all will forget this..
There have been many times in the past where the miners and the metals have dis-connected . Generally speaking, extended weakness in the miners is not a bullish development for the metals. I am not too worried about the current disconnected although I am expecting a pull back in the metals. That is why I liquidated all my leveraged long silver positions on Friday. If we get some temporary weakness, I will stick to unleveraged positions until the picture is clearer.
There have been many times in the past where the miners and the metals have dis-connected . Generally speaking, extended weakness in the miners is not a bullish development for the metals. I am not too worried about the current disconnected although I am expecting a pull back in the metals. That is why I liquidated all my leveraged long silver positions on Friday. If we get some temporary weakness, I will stick to unleveraged positions until the picture is clearer.
BTW GARY, there has been no one as consistently long than I during the latest run up in the PMs and although there have been nice profits, they are not on the scale you are bragging about. In fact, you have been out of the market several times “watching” so I ain’t buying your magnificent profit claims.
Good analysis. An alternative way of tracking divergences between GOLD BULLION (XAUUSD) & MINERS (GDX or HUI) is via the use of the Gold / GoldBugs ratio, obtained by : GOLD / HUI or GOLD / GDX and what you get is the following:
– As the GoldBugs Ratio FALLS, both usually trend HIGHER.
– As the GoldBugs Ratio RISES, both usually trend LOWER.
While Gary’s analysis pointing out the leader/laggard is correct in those cases, it does not always hold. More importantly, using the GoldBugs ratio will help increase confidence about the general direction of both gold bullion & miners.
I mentioned this 2 years ago on here: http://ashraflaidi.com/premium/fxperformance
Ashraf