Last week, I posted a blog that presented some thoughts on where I might start buying gold and or silver for our Equity Platform(s). My thoughts were that gold may just pull back a little more before it enters into an attractive buying point.
As you are probably aware, you can look at many commodities from two strategic trades. One trade is playing the commodity itself. Obviously, the most direct way to play a commodity is via the futures market. Many retail investors and Portfolio Managers – myself included – prefer the convenience of an ETF that shadows the underlying commodity movements.
The other trade is in playing the producers. Sometimes, producers can lead the movement on its underlying commodity. So, a gold producer (or the group of producers) may start to catch a bid before the actual price of gold begins to move positively. Such may be the case right now.
ValueTrend’s Intern Technical Analyst, Aleks Bozic, has an opinion on the gold producers. Aleks likes to look at comparative charts. And he’s seeing some signs of what may just be a shift into gold stocks – and what may be a weakening in the broader SPX in the face of this potential shift. Aleks notes that gold producers can often outperform the SPX when the broader markets are weakening. I thought you, the good readership, might appreciate Alek’s observations. So, take it away, Aleks!
Chart One: XGD.TO: $SPX
- This chart is a ratio of the iShares S&P/TSX Global Gold Index ETF (XGD), along with the S&P 500 Large Cap Index (SPX). The SPX is the green line. This chart shows the correlation between the market peaks and the bottoming of the XGD chart. We are now approaching an “Oversold” market for XGD. We are approaching an “Oversold” Full Stochastics level. Note the prior points noted on the chart via a vertical line. When gold has underperformed on a relative basis and becomes oversold (relative to SPX performance) it can be a bullish sign for gold.
Chart Two: AEM.TO
Aleks thought it might be interesting to look at a couple of the leading stocks within the XGD index. Let’s look at Anico Eagle first.
- AEM.TO is breaking out of a multiyear base above $75. Relative performance to the $SPX is showing signs of outperformance highlighted by the blue arrows showing higher highs and higher lows. We can also see that the blue 50 day moving average is sloping upwards after sloping downwards back in 2015. We also have the Full Stochastics showing a potential buy signal.
Chart Three Kl.TO
Finally we’ll look at Kirkland Lake
- KL.TO is bouncing off trendline support going back from December 2018. We have successfully bounced off this trendline three times. We are also breaking out of a short term bullish continuation pattern called a “Pennant” If you are interested in learning what a pennant is please check out this link from StockCharts ChartSchool. As indicated below the price chart, we have relative performance (green line) making higher highs and higher lows. We also have the Full Stochastics giving a potential buy signal, albeit not as deep as the signals that came out of late 2016 and late 2018.
Keith on Bloomberg/BNN MarketCall this Friday November 22nd at 12:00 noon
Ironically, there was an analyst on Market Call last night who recommended 10% portfolio weighting in gold with Agnico Eagle being a top pick.
Great analysis and charts by Aleks. Thanks.
What do you think about 5% in Agnico Eagle and 5% in Kirkland Lake at this time?
Don
-we have alerts on both of these stocks for purchases if they drop to a certain level OR if they break out. The reason we are waiting a bit before jumping in is that they are both at neartermed resistance. Breakouts would be bullish, but if they don’t then it may be a better bet to buy in at a neartermed support point. Not likely to take long before we get our alerts signalled one way or the other.
Hi Keith. I hope you are all recovered now from your fall a few months back. So what do you say about a buy on Agnicio, and more importantly gold in general now?
Hi Tom
Thanks for the enquiry re my crash. FYI I am up and at it again, training for a race in Florida in Feb. So far my fitness is on track to be ready for that race.
We bought a small amount (2%) in silver bullion ETF recently. But we haven’t moved on any stocks, including AEM
Honestly, I think the gold producers will be a good position to hold in the first month or two of 2020… you probably could leg in at any time with increments assuming you are ok with some potential neartermed downside. Often, the gold and silver markets pull back a bit in December, making an excellent entry point nearer to the mid-end of the month. But that’s not guaranteed, so if you like the stock, consider a leg-in strategy of perhaps 2-3 steps.