Get ready for a golden pullback.
Gold has enjoyed an amazing rally this year. The price of the shiny yellow metal climbed above $2,800 per ounce on Wednesday. It’s up 35% for 2024, with more than half of those gains coming in just the past three months.
Gold bugs are smiling. These are big gains. And, they’re looking for even bigger returns in the months to come.
But first… it looks like we’re ready for some air to come out of the gold bubble.
Look at this chart comparing the action in gold to the action in the gold mining stocks…
This is a ratio chart that divides the price of the VanEck Vectors Gold Miners Fund (GDX) by the price of gold. The absolute level of the chart isn’t important. It is the direction of the chart that provides a clue as to the future short-term direction for gold.
You see, gold stocks tend to lead the price of the metal. So, when this chart is moving higher – meaning gold stocks are outperforming gold – the price of gold is set to rally.
When this chart is moving lower – meaning gold stocks are underperforming the action in the metal – it often leads to a pullback in gold.
After pushing higher earlier this month, this chart has turned sharply lower. The gold stocks are underperforming.
A Big Warning Sign
That’s a big warning sign for the price of gold.
For example, when this ratio chart peaked in mid-July, gold was at $2,470 per ounce. Two weeks later it was at $2,350.
Then, after a strong rally in early August leading to another peak in this chart by the middle of the month, gold marked time for a few weeks – until the gold stocks started to outperform again.
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The recent underperformance in the gold stocks should be a concern for gold investors. It likely indicates at least a pause in the current rally, or possibly a more significant pullback.
That doesn’t mean we should sell our gold. We are in the midst of a gold bull market, and I suspect the shiny yellow metal will be even higher in the months ahead.
But, folks who are looking to buy more gold right now might consider thinking twice about chasing this rally. This ratio chart suggests we could have a better buying opportunity a few weeks from now.
Best regards and good trading,
Jeff Clark
Editor, Market Minute