Gold Stocks – A Show Of Strength

Gold Sector Outperforms Broad Market

The gold sector is in an uptrend since September 2018. The initially rather labored move accelerated after a secondary low was established in May 2019 and the 50-day and 200-day moving averages were breached for the second time. Last week the two moving averages were once again overcome in the course of the post-crash rebound. Here is a chart showing the entire move since 2018:

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After a rather harrowing decline in sympathy with the February-March stock market crash, the HUI has swiftly moved back to its previous high for the move and is now trading above its 50- and 200-day moving averages again.

Since the September 2018 low, the gold sector is outperforming the broad market. As the HUI-SPX ratio shows, its outperformance has recently accelerated:

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HUI-SPX ratio: since the September 2018 low in the gold sector, it has begun to outperform the broad market. Both the S&P 500 Index and the HUI have risen strongly since the crash lows in March, but gold sector outperformance has strengthened further.

The strongman is in town….

The Importance of Moving Averages

Back in 2015, we showed a number of charts illustrating the importance of the 200-day moving average. History certainly suggests it is a demarcation one should pay close attention to. A chronological review of these charts follows below:

1986

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The 1986 low in the XAU Index: once the 200-day moving average was overcome, it was tested from above and began to serve as support. The rally then accelerated after the 50-day ma was bested as well.

1992

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In 1992 the 200-DMA once again provided support after it was breached from below. The sequence was very similar to the 1986 low.

1998

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The 1998 example shows what happens when a breach of the 200-DMA fails immediately: the 200- and 50-day moving averages subsequently remain resistance.

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