Technical Signals For Gold And The Mining Shares

January 30, 2019

An improving technical picture can be a key driver of the institutional fund flows that will be necessary to drive COMEX gold and the mining shares upward in the weeks ahead.

However, let's make one thing perfectly clear before we go any further...

I understand that the price of COMEX gold and silver is managed and manipulated by The Bullion Banks.

You likely understand this, too.

However, 99.8% of the institutional and hedge funds managers in the world DO NOT understand the historical fact of gold price management that dates back to the 1950s.

Therefore, don't give me this stuff about " technical signals don't matter in a manipulated market". They DO matter—precisely for the reason mentioned above. Of the 99.8% of money managers who don't understand how the gold market truly operates, a significant number will decide to allocate cash to gold, silver and the mining shares this year, and they will do so for a number of geopolitical and economic reasons. They will also do it for the additional "alpha" they think they can add by allocating funds to a sector that is well-positioned technically.

And this is where technicals matter. So, to that end, let's take some time to assess some common technical indicators to see if they are working in our favor.

Let's start with COMEX gold. You're likely familiar with the term "golden cross". This occurs when a short-term moving average of price moves up and through a longer-term moving average. As you can see below, the price of COMEX gold accelerated higher in December, immediately after the 50-day MA "goldenly crossed" the 100-day back on November 29.

As technical signals go, however, an even more bullish signal is a golden cross of the 50-day through the 200-day. When these two bearishly crossed back in June, technical and hedge funds were quick to liquidate their COMEX gold futures, and price fell nearly 10% over the next sixty days. With that in mind, take a look at what just occurred yesterday—a bullish golden cross. Can we now expect further technical and hedge fund additions? The short answer is "yes". 

Combine this technical picture with the coming reversal of Fed policy and the growing global demand for physical gold, and you get a recipe for an increased flow of funds that is in search of exposure to gold in all its forms. This will invariably lead to higher prices, despite the continuing efforts of The Banks to dilute the float of available COMEX contracts.

A higher COMEX gold price will also drive institutional funds to seek gold exposure through the acquisition of mining shares. Already, the recent spate of large-cap mergers has shown a spotlight upon the sector, and this has helped to spur some interest. However, the relative outperformance of the mining shares versus the S&P since November is catching a lot of institutional eyes, too. As you can see below, the HUI mining share index is up 11.3% over the past three months. Compare this to the S&P 500, which is off 0.6%.

And be sure to note the looming technical breakout and golden cross of the GDX, a very popular large-cap mining share ETF that is often used by institutional money managers as a diversified way to gain mining sector exposure. 

In summary, 2019 and 2020 will be memorable years for gold and silver investors. If you're not sure why that's the case, please be certain to review the 2019 forecast we published two weeks ago.

Additionally, understand that a growing flow of funds will likely overwhelm the few investment opportunities available to personal and institutional investors alike. The movement of just a tiny fraction of global assets under management into gold, silver and the mining shares will result in tremendous, out-sized moves for the sector. We saw this in 1980. We saw some of this occur again from 2008-2011. And we're about to see it play out once more in 2019-2020. 

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Craig Hemke

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

Gold is found in nature in quartz veins

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