Gold Shares Look Poised for a Dramatic Rise

My favorite technical analyst because of his constant accuracy is Michael Oliver (www.OliverMSA.com). That’s why I have him on my radio show almost every week. He is firmly in the gold share camp, but thinks gold shares will outperform gold bullion in what may be shaping up as the final but most dramatic leg up in the generational long gold bull market. But recently, gold shares have actually fallen behind gold as it has recently risen well above $1,300. So many of you have been wondering if lagging gold shares may be signaling tough times ahead for gold related assets in general. Not so, according to Michael. Here is what he had to say about this topic on February 14, 2018.

“Back in late 2015 and early 2016, just prior to the annual momentum net trend breakouts by gold miners and gold, MSA argued it was likely that gold miners in general would outperform gold in any new bull trend. There has been a lapse in that performance by miners over the past year or so, and that has caused angst among gold mining investors. We update our spread assessment here.

“Because current popular ETFs of gold miners have limited data history, we defer again to the XAU Index of gold and silver miners. Its components are reflective of GDX (VanEck Vectors Gold Miners ETF, which also contains key silver miners).“

In the initial price surge by gold and gold miners from their late 2015 bear lows, the spread reacted favorably to miners vs. gold.

The spread went from a low reading of 4% (XAU’s price level vs. gold’s) to 8% (arrows). The spread has since eroded to the downside in a gentle but persistent manner.

“As for the spread’s annual momentum, action in 2016 broke the readings out above the zero line/36-mo. avg., a level that the spread had dropped below in 2008, remaining below that level until early 2016. (We have enhanced the zero line going back to 2008.) That was a massive annual momentum signal favoring miners’ performance. The current reading is .0628 (6.28%). The 36-mo. avg./zero line is .061 (6.1%). MSA would prefer to see the spread readings hold at or above that annual average (i.e. for momentum to hold above the zero line on monthly closes).

“Yes, miner performance has pulled back since mid-2016, but in terms of major trend metrics the pullback hasn’t damaged the positive annual momentum signal rendered in early 2016. As for a level that signals an upturn that breaks out of this downward drift pattern? Close February on the spread at 6.6% or March at 6.57%. With those readings, we’d assume the spread will be ready for its next upside leg in performance (favoring miners).” – MSA

About Jay Taylor