After The Fed Meeting
So, interest rates are up. This time the FED did what a majority of investors were expecting. Interestingly, contrary to popular wisdom, gold prices went up as well.
What is even more interesting, although FED rates went up, market interest rates went down (for example, 10-Year Treasury yield went down from 2.6% to 2.5% on the announcement day). I am not surprised - the general rule is as follows: before an event the financial markets try to adjust to this event; after the event the markets go in the opposite direction, at least for some time.
Now we are in this second stage of market reaction, which can take some time. Anyway, gold bugs regained some optimism. For example, this week the SPDR Gold Trust (GLD) reported a high inflow of gold into its vaults (380.9 thousand ounces until yesterday).
What is more, share prices of gold/silver miners also reacted very positively on higher interest rates. For example, the Market Vectors Junior Gold Miners ETF (GDXJ) went up 11.5% on the FED announcement day.
However, in this post I would like to look at precious metals miners in the long - term. Let me show this chart:
The chart shows the well-known ratio of GDXJ/GDX (GDX stands for the Market Vectors Gold Miners ETF). As a rule, when this ratio goes up it means that:
- we have a full-blown bull market in gold/silver
- there is an initial phase of a bull market in gold/silver and investors may consider investing in precious metals shares
When the opposite happens (the ratio goes down):
- there is a bear market in gold /silver
or
- investors have to be very cautious about investing in precious metals shares (a bull market is close to its end).
For example, the blue arrow indicates an initial stage of a bull market in the precious metals market. This phase started in March 2015, when everybody was pessimistic about gold/silver. However, in March 2015 the ratio GDXJ/GDX had started its upward trend. It was an early signal for gold bulls that, after a four-year correction in gold prices, they should have considered investing in the precious metals sector again.
Last but not least - the GDXJ/GDX ratio still supports a bullish thesis on gold...
Disclaimer: This article is not an investment advice. I am not a registered investment advisor. Under no circumstances should any content from here be used or interpreted as a recommendation for ...
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"Anyway, gold bugs regained some optimism. For example, this week the SPDR Gold Trust (GLD) reported a high inflow of gold into its vaults (380.9 thousand ounces until yesterday)."
Once again Simple Digressions, you're being very misleading. You frequently claim that GLD's holdings are a reliable indicator yet in January of this year, there was a 7.5% rise in the price of the GLD, which means people have been buying. Yet, since gold bottomed, GLD's holdings have fallen another 4.4%. There is many more similar instances of this if you want to go further. GLD has continually shown itself to be completely useless and irrelevant as an indicator.
I'm also getting the impression that you do not understand GLD's structure very well. Do you understand that if people are selling GLD, draw-downs would be seen, and if people are buying GLD, builds would be seen? This means GLD would be a lagging indicator but the above January data (along with a number of other data sets) show that GLD holdings is not reliable for even the role of a lagging indicator.