Monday, March 4, 2013

When it Comes to Gold - It's All Relative

As of this morning, the precious metals miners (GDX, XAU) continue to trade under significant pressure. Across the daily timeframe, we have followed the structure and momentum signatures of capitulation in the BKX relative to the broader market in the first quarter of 2009. Similar to my note a few weeks back in Apple, the ratio's TRIX indicator is on the cusp of breaking its previous low this past July. Quite similar to the 09' comparative, relative price led lower - with momentum (as expressed by the TRIX) eventually exceeding the previous summer low. This dynamic marked a phase transition for the sector - relative to the SPX - of finding a low. Should the comparative continue to be prescient - we would expect volatility to increase on the downside as relative price searches for exhaustion.    
Widening our view, here is an update of my note from the end of January (see Here) that takes a broader look at the performance relationship between the miners and spot prices. As expected, the performance series of gold and the XAU index continues to follow the previous cycle's value trap footprints. 

While we have utilized the daily BKX:SPX ratio from 2009 to appraise momentum in the sector across the short to intermediate time frames - the longer-term performance comparative puts into perspective what my work continues to point towards:

Spot prices will likely start catching up on the downside.    

*  All stock chart data originally sourced and courtesy of 
   - Subsequent overlays and renderings completed by Market Anthropology.

As I mentioned before, this is not an apples to apples comparison, but an expression of how a derivative sector capitulates - relative to its eroding and denominating backdrop. While the miners, relative to gold, are now searching for an intermediate term low - spot prices likely have a ways to go.