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Miners Digging Out?

By: Matt Bauer & Steve Sellers

In the first quarter, gold was the second worst performing asset of the 12 asset-class benchmarks we track. Toward the end of March, Ned Davis cited fiscal and monetary stimulus as well as extreme negative sentiment as potentially bullish for the metal. Tim Hayes just moved to bullish on gold, highlighting the resumption of gold’s uptrend, U.S dollar weakness, negative real yields, and echoing Ned on expansionary policy.

Miners outperform during gold rallies

We’ve shown in the past, during gold rallies greater than 10%, gold miners (GDX) and junior miners (GDXJ) significantly outperform the metal. To be clear, our call is not that gold will rally more than 10% from here. But the miners and junior miners both successfully retested levels that had been multi-year resistance, moved above their 50-day moving averages, and are nearing their 200-day moving averages (chart).

Flows returning

Gold’s poor performance in the first quarter was accompanied by outflows from the gold tracking ETF GLD (-$8.3 billion YTD) and from both miner ETFs (-$1.4 billion for GDX and -$210 million for GDXJ). However, GDX’s five-day flows have recently turned meaningfully positive for the first time since early January and GLD’s flows, while still negative, look to be reversing.

Breadth weak but improving

On our ETF Breadth Report, for equity funds with more than $1 billion in assets, GDX and GDXJ have the worst long-term breadth (measured by percent of constituents above their 200-day moving average). Breadth has been improving for both funds since the end of March and for GDX, of the top six holdings by weight which collectively account for just over 50% of the portfolio, three are now above their 200-day moving average.

improving trend gold

Intermediate-term overbought

Using a 126-day z-score of 21-day price changes as an indicator, this month’s rally has moved GDX into overbought territory on an intermediate-term basis. A pullback or sideways trading would not be unexpected (chart, right). Using a longer view, GDX is neither overbought nor oversold.

gold GDX

Confirming the potential for range-bound trading, the Strength of Trend (SOT) composite for GDX resides at zero (chart, left). Consolidation for GDX, staying above 30 (30.90 is the low of the year), would be positive. Aggressive allocators can follow Tim’s upgrade here with the miners and use the year-to-date low to define risk. However, we’d like to see an improving SOT composite and continued positive asset flows to accompany gold’s uptrend before getting bullish on the group.

trend GDX

New report

Our ETF_INSIGHT report can be used to analyze multiple funds across numerous attributes including holdings, performance, technical indicators, and valuations. We’ve added a new feature so users can select criteria and rank each fund by the chosen criteria. The table below was generated using this new feature. Here we’re comparing GDX, GDXJ, SPY, and ACWI using three fundamental criteria and three measures of momentum. The report provides an average rank for the selected criteria and can display the ranks, the values, or both the ranks and values (as shown below). The miners rank well by the fundamental criteria but poorly by the momentum measures. The opposite is true for the broad indexes represented by SPY and ACWI. This new report should help users come to a quantitatively driven decision when comparing multiple funds.

ETF factor ranks

Originally Published on April 22, 2021

Disclosure: Ned Davis Research, Inc.

The data and analysis provided by Ned Davis Research, Inc. (“NDR”) do not address suitability for any particular investor; are provided “as is”; and are based on data believed to be reliable, but not guaranteed. NDR DISCLAIMS ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. Performance measures do not reflect tax consequences, execution, commissions, and other trading costs, and investors should consult their tax advisors before making investment decisions. Past performance does not guarantee future results. NDR believes no individual graph, chart, formula, model, or other device should be used as the sole basis for investment decisions. Using such devices presents many difficulties and their effectiveness can vary over time because prior patterns may not repeat themselves and their use by other market participants can impact the market in a way that changes the effectiveness of such devices. NDR suggests using a weight of the evidence approach.

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