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So far
in the past 6 months gold has made two important lows, a December 2013 low
and a June 2014 low. The June 2014 low was a fake breakdown turned fast move higher. This is
very important, since every rally in gold has failed for the past couple of
years during this bear market. Now we finally have a breakdown in gold
that failed, a bullish omen. But a hidden piece of information that is
just as bullish as this failed breakdown is how certain mining stocks are
behaving.
Mining
stocks come in all different shapes and sizes but one factor that binds them
together is the price of gold. Mining is a tough business, and even the
best mining companies in the world can't function well with a low gold price
relative to their cost of production. So when the gold price is in a
downtrend all mining stocks tend to get punished and sometimes severely
punished. But one thing to remember is markets are always forward
looking. So we should expect that if gold were to finally stop its
downtrend, the market would start to reward the "better" mining
stocks with higher prices.
This is
actually exactly what we are seeing in certain mining stocks right now.
We now know that gold made a major bottom in December 2013, because we can look at it
in the rear view mirror on a chart. So once gold made that low,
pressure started lifting on the stronger mining stocks. But gold made a
secondary low in June 2014 that exerted additional pressure on the mining
stocks. This actually pushed many weaker mining stocks to even a
further new low. But the stronger stocks rejected this secondary bottom
in gold, and either traded sideways or continued higher.
Let's
take a look at some examples. The first example is Stillwater Mining, a
platinum and palladium producer. Stillwater is more tied to platinum
and palladium than gold or silver, but since they are all precious metals
which are very strongly correlated it's a valid example. Once precious
metals made that important December 2013 bottom, the pressure on SWC
drastically reduced and it immediately launched into a new Stage 2
uptrend. This is very bullish action. It's even more bullish the
way Stillwater rejected the pullback in precious metals from March
to June 2014. Stillwater remained in a strong Stage 2 advance
during this pullback and took barely any technical damage.
 
Taho
Resources is a new silver mining company. TAHO broke out into a Stage 2
advance in early 2014 as gold made its bottom. Then when gold had
the pullback this year, TAHO just traded sideways above the 30-week moving
average. It didn't give up much ground at all, and continued to
outperform gold as well. And once the June breakdown in gold failed
TAHO started breaking out to the upside again.
Royal
Gold is a royalty company in the mining space. RGLD had very similar
technical action to TAHO. A breakout in early 2014, then a pullback
with the gold pullback into June 2014. Then as the pressure from gold
was lifted in June when gold bottomed, RGLD once again broke out to the
upside.
These
aren't the only mining stocks exhibiting this behavior. FNV and PPP are
two more examples. The point is though that these mining stocks are now
6 months into a new bull market! They clearly could be sending a signal
that the gold market is a lot stronger than most people think. If this
is the "turn" in the gold sector, then it's not a surprise to see
some leadership in mining stocks take hold as the entire sector gradually
turns back to the upside.
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