If you want to make money trading gold, just remember this…
Gold does best when the gold stocks outperform the metal.
Take a look at this ratio chart comparing the action in the VanEck Vectors Gold Miners ETF (GDX) to the action in gold…
When this chart is moving higher, making a series of higher highs and higher lows (illustrated by the dashed blue lines) gold stocks are outperforming gold. That’s usually the best time to be invested in gold.
When this chart is moving lower, making a series of lower highs and lower lows (illustrated by the dashed red lines) gold stocks are underperforming the metal. That’s when gold tends to behave poorly.
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The red arrows point to when the two uptrends ended – with the ratio making a lower low. Those are sell signals for gold.
The blue arrow points to the end of the downtrend – with the ratio making a higher high. That was a buy signal for gold.
Here’s how those signals line up on the gold chart…
If you were trading gold based on the signals from the GDX/GOLD ratio chart, you would have sold gold in mid-January at about $1,830 per ounce. Then you would have bought back into gold in mid-March at $1,730. And you would have sold in early June at about $1,900.
None of the signals marked the absolute high or low for the gold price.
But, the sell signals would have gotten you out of gold near the top of its rallies, and would have saved you from the ensuing declines. And, the buy signal would have gotten you into the metal in time to profit on its springtime rally.
It’s worth noting that the ratio chart has been moving higher over the past week. It hasn’t made a higher high yet. So, the chart is still in a downtrend.
But, if the ratio can climb above 0.0193 it will confirm that gold stocks are once again outperforming the metal. It will trigger a new buy signal. And, it should mark the start of another multi-week rally phase for the price of gold.
Best regards and good trading,
Jeff Clark
P.S. If you held onto gold, you could’ve made money each time it rallied, but lost money on the way down. However, had you simply traded it, you could’ve made money and avoided the declines.
You see, being a trader simply offers better opportunities to make money than buying and holding. And if you’re a buy-and-hold investor, heed my warning – what’s coming in the weeks ahead could wipe out all of your open capital gains…
We’re headed towards a rare market that we’ve only seen twice in the last 50 years. It’s called a “zero-sum” market, and it’ll be a nightmare for shareholders. However, it’ll be a trader’s paradise.
To prepare for the incoming zero-sum market, and find out which stocks to avoid trading, click here. I’m hosting a free special event next Thursday, July 22 at 8 p.m. ET, to explain why I see this event coming, and how to make money rather than lose it all… Make sure to reserve your spot now.
Eoin’s Insights
Happy Friday Market Minute readers. Last week, I gave my thoughts on volatility, growth in Chinese companies, and how carbon credits are linked to inflation. Today, I have another brand-new presentation on what’s been going on in the markets.
Today, I’ll be discussing what lumber prices tells us about inflation, the automobile shortage, and what Jay Powell said about digital currency. Just click below to watch.
Reader Mailbag
Will you be buying into the next gold rally? Or have you been holding off on buying gold lately?
Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com.