Michael Oliver Looks at Gold Miners (XAU) from a Longer Term Perspective

XAUIn decades of working with many markets, MSA has found that mature markets tend over time to establish their norms, even in terms of where their “extremes” are. It won’t be noticeable on price, but when detrended on a momentum oscillator, such discovery is often “voilà!”

Here we have gold miners going back four decades. And what you see is that peaks and troughs in momentum of gold miners are commonly at 50% to 60% over or under the annual mean. Currently 10% over.

The recent surge, no doubt a surprise to many (price doubling in a matter of several months), was not difficult to pre?define when simply focusing in on the momentum action of just the last few years, and especially the basing range that early February action blew out to the upside.

As for the zero line, which sometimes will act as a temporary barrier, it was not even a road bump. Action reached 20% over that 36?mo. avg. in the month that the zero line was crossed. Finally with this month, XAU (and GDX) are getting something that might be called a pullback.

What makes these charts even more interesting is that many other equity categories (throughout the developed economy markets) have inverted pictures to the XAU momentum situation. Topping momentum structures breaking down, not bottoming structures breaking out to the upside. And that probably means much.

MSA still argues that GDX (now just below $24), the unleveraged gold mining ETF that MSA usually focuses on, is likely to reach $30 area before any serious pullback/correction, and once that’s complete I am looking for it to reach the very upper $30s by late 2016. MSA will reassess in route.

Gold Miners vs. gold

XAUMonthlyHere we have another big issue for anyone positioning gold. Over the past decade it was preferable to be in gold not the miners.

I argue that table has been turning.

A multi?year annual momentum chart downtrend structure came out to the upside in late 2015. Then in recent months the top end of a massive momentum base (defined along the top side by the 36?mo. avg./zero line) came out. Even on the spread chart, a several point downtrend back to 2007 has been overcome.

Therefore, MSA concludes that it’s a performance trend change favoring gold miners over gold.

And given gold’s performance vs. much of the world in recent few quarters, I’d say gold miners might just be on top of the world. Plenty of reasons for that can be speculated upon, but that’s not MSA’s job. We just measure, ma’am.

EDITOR’S NOTE: Michael Oliver has become a great friend of mine. He appears on my radio show almost every week for at least a few minutes not simply because he is a friend but because he is the best technician I have found when it comes to ensuring me that I am on the right side of a market from a longer term investment as opposed to trading perspective. So, Michael talks almost every week about the gold, equity, and debt markets. But he covers many, many more markets for his subscribers and he sends out frequent missives every week. His service is geared more toward financial professionals and it is priced accordingly. But depending on your budget you may find his service to be a great value. Go to www.OliverMSA.com to learn more.

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.