What If Gold Miners Can’t Keep Up?
If you trust the SPDR Gold Shares (NYSEMKT: GLD) as the top gold ETF , gold is up almost 25% so far in 2016. On the other hand, the gold-mining stocks have seen even the index leaders double. And the junior gold stocks, with lower market caps, have seen gains of over 200% so far in 2016 in some cases. The VanEck Vectors Gold Miners ETF (NYSEMKT: GDX) is up 92% so far in 2016 and that is the largest miner. Then there is the so-called junior gold-mining sector of stocks, and the VanEck Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ) was last seen up 131% so far in 2016. Let’s just say that this is pricing in a major boost to earnings for gold miners and higher prices. What if that does not come about? Credit Suisse was cautious on three-quarters of its gold stock universe even in August.
The Mighty Dollar
It has been about 18 months or so that major companies have had to deal with a much stronger U.S. dollar. That theme was much more prevalent in 2016, but the next directional move could really impact the price of gold. There is generally an inverse relationship between the dollar and the price of gold: a falling dollar means other currencies went up and increased the demand for gold and other commodities. This does not have to hold true, but it is a general theme sort of like stocks being inversely related to bonds.
The November Election
Another issue is the 2016 presidential election. 24/7 Wall St. isn’t going to bother picking a winner or loser, and frankly half of the readers would upset about either candidate. Some reviews have tried to show whether Donald Trump or Hillary Clinton would be better or worse for different asset classes, but for now either outcome is an uncertainty. Perhaps the real issue is over the balance of the House and Senate this year.
Getting in the middle of terrorism is something that the financial markets have a very mixed measurement of. Either way, gold is considered a safety trade on a global basis. The headlines have been more muted in recent weeks, but everyone knows we can be an hour away from catastrophic news about terrorism, military action, accidents, embargos and more that only creates more uncertainty.
The Darned Gold Chart
Market technicians generally do not get too hot and bothered about the real world news. They rely on the notion that the charts tell you what is happening, and what that means for prices tomorrow. Now the price of gold is lower than the peaks seen in July and August, with the early September recovery looking more like a third set of “lower highs” from this summer. Charts can change on a dime, but right now the gold charts have to be considered an uncertainty. Still, at least for the time being, there does not appear to be any “death cross” or other major pattern signaling a crash or elation-fueled rally is imminent.