Gold miners versus broad market? Yes, watch!

GDXOne can never be sure of what markets might do in the future, but watching the structure and momentum of markets is what J. Michael Oliver does best. And what he sees with regard to gold and gold shares is much more positive than what he sees for the overall U.S. equity market.

In measuring momentum, one of the things Oliver likes to do is look at spreads. In this case, the chart on your left measures the performance of the gold miners ETF, GDX, relative to the S&P 500. As you can see, the momentum in terms of the advantage the S&P has had over gold shares since the bear market began in gold has, at least for now, basically disappeared. In fact, Michael points out that since January 1 of this year, if you had shorted the S&P and gone long GDX, you would be slightly ahead.

That’s fine and good, but as Michael further points out, the key is the long-term momentum situation, which has shifted to GDX and away from the S&P 500. Note the non confirmation of the third of three waves of decline in this ratio of GDX to the S&P 500. Now it is always possible that another wave down that falls below the second wave and thus confirms an ongoing bear for gold stocks and an ongoing bull for gold shares is possible. In this crazy world of massive manipulation in virtually all markets, who is to say that J.P. Morgan or Goldman Sachs can’t hit the phony virtual gold markets to take the quoted gold price much lower? And who is to say that the President’s Working Group won’t be out there buying stocks to drive their prices up just as they have driven bond prices higher? In a world in which our policymakers are virtually no different than any fascist or communist group of policymakers, who knows what the future holds? But as our own policymakers should have learned but didn’t from the failure of the Soviet Union, there are limits to how much you can fool Mother Nature before the system reaches its limits. And can there be any question but that the global financial system is nearing the next major systemic failure? When the system fails, I want to be out of the system and in gold and silver.

At least what the charts above are suggesting is that we are nearing a breakdown in the bull market for the major stock market and a bear market in gold stocks since 2011, a trend that began exactly when the U.S. Treasury market was downgraded. From a structural point of view, what we gold bulls need to see is for the GDX/S&P 500 line to break out above the perforated downtrend line into the area just above it. To achieve that breakout point in May, we will need to see this ratio reach $21.25 and to achieve it in June we will need to see a breakout at $20.76. I expect to have Michael on my radio show to discuss it further.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.