Gold Finds a New Low But Gold Stocks Don’t Confirm

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Gold Bug

Gold (NYSEARCA:GLD) broke through the $1050 level morning for the first time this decade, confirming the continuation of a now over 4 year old bear market before bouncing back above $1060. Despite the new low, there is another ray of hope for the bulls: gold stocks have not confirmed the new low.

The mining ETFs remain well above their lows hit in August, with the majors ETF (NYSEARCA:GDX) over 11% above its low of $12.62, and the juniors (NYSEARCA:GDXJ) with a buffer of over 8%. This is especially unique because the metal itself has been down an amazing 27 out of the last 34 days. By comparison, gold miners have only been down 16 of the last 34 days.

That means gold stocks have risen in the face of a falling gold market 9 times in the past 6 weeks.

Another interesting thing happened today, and that is that the S&P 500 (NYSEARCA:SPY), bonds (NYSEARCA:BND) and the dollar index (NYSEARCA:UUP) were all down together while gold and gold stocks were broadly up. The dollar got severely hit by a Mario Draghi QE letdown which sprung the Euro much higher today. As a result the dollar was down over 2%. These kinds of down moves in the dollar are very rare, especially coupled with a sharp fall of nearly 3% in long-dated Treasury bonds (NYSEARCA:TLT).

We are now two weeks away from the Federal Reserve’s next decision on interest rates. Barring a severe stock market crash, the Fed looks set to finally raise its target rate to just a quarter of a percent. Gold’s new low earlier this morning looks to have already priced this rate hike in given the odds of it happening are about 80% as calculated by the interest rate futures market. If and when it actually happens, it is quite possible that gold will actually rally on the news. This is contrary to normal behavior but when everyone expects the opposite, sometimes the market throws these kinds of curve balls.

 

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