The rally in gold could be still in the early stages, according to the charts

Published Thu, Apr 4 202412:29 PM EDT

The year started with the growth stocks pushing higher, but the leadership baton appears to have been passed to more value-oriented sectors. Our review of the charts of precious metals tells us that the recent rally in gold prices could be just the early stages of a broad advance in the second quarter and beyond. The weekly chart of gold, using the SPDR Gold Shares (GLD) , shows a three-year basing pattern starting in mid-2020. Note how the peak in August 2020 lines up almost perfectly with the subsequent highs in March 2022, May 2023, and November 2023. GLD tracks gold futures prices. I believe the legendary technical analyst Alan Shaw is credited with the phrase, "The broader the base, the higher in space." In this case, a multi-year basing pattern with a very consistent level of resistance was finally broken to the upside in March of this year. This suggests much further upside for gold in the coming months. What about gold stocks? Interestingly enough, gold stocks have actually been underperforming gold for most of the last 12 months. So while gold prices have appreciated, gold stocks have been lagging behind and therefore have not been a very good way to play this rally in precious metals. This chart above shows the relative performance of the VanEck Vectors Gold Miners ETF (GDX) versus the GLD. Up until the end of February, the chart was clearly showing that spot gold was a better bet than gold stocks. But over the last six weeks, gold miners have shown renewed strength, outperforming spot gold. This may be just the beginning of a "catch up" trade where gold miners close the performance gap with gold. The GDX shows a double bottom pattern over the last six months, having tested the $26 level in October 2023 and again in February 2024. In the last six weeks, the GDX has round-tripped back to retest a well-established resistance level around $32-33. That rally represents an almost 30% gain for gold stocks since the February low, meaning the relative performance versus the S & P 500 index (bottom panel) has been quite impressive. If the GDX can secure a foothold above the $33 level, finally breaking out above resistance, then the chart of the GDX starts to look much more like the chart of the GLD. Gold stocks would finally be participating in the upside implied by the strength in gold prices. What would give us confidence in further upside for gold miners? First off, it's all about gold prices continuing to rally. And given the strength in precious metals including gold and silver, as well as other strong trends in charts like copper and crude oil, we feel this is part of a broader advance for the commodity space. Gold stocks have been lagging behind spot gold, but that trend of underperformance has begun to change in the last six weeks. Investors looking to diversify away from growth leadership names should consider gold stocks as the technical characteristics continue to improve and impress. -David Keller, CMT marketmisbehavior.com DISCLOSURES: (Owns GLD) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.