Gold Mining Stocks Say GLD Will Shine Again

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Gold bullion on pile golden coins a lot of
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Gold is the world’s oldest means of exchange. Since before biblical times, gold has been a store of value and a sign of wealth. Long before there were pounds, yen, dollars, euros, or any other currencies, gold was money. For many years, the precious yellow metal was exchangeable for many countries’ legal tender. The US ended the gold standard in 1971 to prevent its currency from being exchanged for the metal by other countries.

While legal tender is now fiat and relies on the faith and credit of governments that issue the currencies, those governments continue to hold gold, classifying the holdings as foreign exchange reserves. The classification validated gold’s role as a reserve currency in the global financial system.

Over the past years, central banks and governments have increased their reserves. China and Russia have been significant buyers, adding domestic output to reserves and even buying on the international market.

On February 24, 2022, Russia invaded Ukraine after the Russian and Chinese leaders shook hands on a “no-limits” support understanding on February 4, 2022. Sanctions on Russia have attempted to isolate the Russians, who recently declared they will exchange 5000 rubles for one gram of gold. The move is an attempt to stabilize the ruble by backing it with the world’s oldest precious currency. Time will tell if China follows as the world’s second-leading economy moves to increase the yuan’s profile in the worldwide financial system.

Gold is money. As of April 22, the APS was long the SPDR Gold Trust ETF (NYSEARCA:GLD) product, the most liquid gold ETF product that holds gold bullion. Meanwhile, gold mining stocks have signaled that gold’s price could be heading a lot higher.

A New High In March As Gold Eclipses $2070 Per Ounce

Nearby COMEX gold futures reached a record high of $2063 in August 2020 and corrected to $1673.30 per ounce in March 2021.

Bullish trend in gold futures
COMEX Gold Futures Chart (Barchart)

The chart shows that gold futures began making higher lows after the correction took the precious metal to a bottom in March 2021. After breaking above the $1869.70 level in February 2022, gold broke the pattern of lower highs, setting the stage for the move to a marginally higher record peak at $2072 in March 2022.

Gold had been straddling the $1800 level from May 2021 through February 2021, which became a pivot point and launching pad for the move to a new record high last month.

A Correction In Gold Futures And Price Consolidation

The nearby June COMEX gold futures contract reached $2082 per ounce on March 8, 2022.

Lower high and consolidation
COMEX Gold Futures Chart (Barchart)

Source: CQG

The chart shows the new highs in March gave way to a correction. June gold futures made a lower high at $2003 per ounce on April 18 but failed and was at the $1934.30 level on Friday, April 22.

Open interest, the total number of open long and short positions in the futures market, declined from 645,711 contracts on March 7 to 569,941 contracts at the end of last week. The 11.7% decline when gold fell 7.6% is not typically a technical validation of an emerging bearish trend in a futures market.

Daily historical volatility fell from 28.48% on March 15 to the 11.70% level at the end of last week. Gold is a hybrid somewhere between a currency and a commodity on the investment spectrum. The precious metal tends to be more volatile than currencies but experiences less price variance than metals and other commodities. As of the end of last week, daily historical volatility in the dollar index stood at the 6.32% level. In NYMEX crude oil, it was at 47.3%, and in the COMEX copper futures market, the price variance measure stood at 22.94%. Gold is unique, and its price trend since 1999 remains bullish.

Gold Mining Stocks Say The Next Move Is Higher – New Highs In NEM

Gold mining stocks tend to magnify the price action in the gold futures market. They often outperform the gold price on a percentage basis on the upside and underperform during downside corrections.

Newmont Mining (NEM) is the leading US gold mining company. While China leads the world in gold output, NEM is the top publicly traded company producing the metal, with 5.88 million ounces of production in 2020 and 92.8 million ounces of gold reserves as of December 31, 2021. While gold moved to an all-time high on March 8, NEM shares moved higher even as gold prices corrected. On March 8, NEM shares closed at $77.61 per share.

Chart of Newmont Mining Corp Shares (Barchart)

The chart shows that NEM shares rose to a new record high of $86.37 on April 18 before correcting. In May 2021, the stock reached $75.31, surpassing the 2011 $72.42 high. NEM shares corrected to the $74.52 level on April 22 as Q1 earnings were disappointing.

NEM reported Q1 2020 earnings of 69 cents per share, missing the 71 cents consensus estimate and below the 74 cents the company earned in Q1 2021. The earnings miss came from the lower-than-expected output because of inflation’s impact on production costs.

Meanwhile, as of last Friday, at $1934.30 per ounce, gold was 5.50% higher in 2022. At $74.52, NEM shares have moved 20.15% higher this year, far outperforming gold.

GDX And GDXJ Outperform The Metal – GLD Is The Most Liquid Gold ETF Product

Newmont Mining is one of many gold producers that trade in the stock market. Owning an individual miner involves idiosyncratic risks of management, mining properties, and geography. A portfolio approach blends and mitigates some of the risks. The VanEck Vectors Gold Miners ETF (GDX) product holds the leading senior gold mining companies, including:

Top Holdings of the GDX ETF Product (Barchart)

At $36.94 on April 22, GDX had $14.887 billion in assets under management. The ETF trades an average of over 22 million shares each day and charges a 0.51% management fee. NEM is the ETF’s top holding with a 15.54% exposure.

The VanEck Vectors Junior Gold Miners ETF (GDXJ) product holds shares of the leading junior gold mining companies, including:

Top Holdings of the GDXJ ETF (Barchart)

At $45.61, GDXJ had $5.066 billion in assets under management. The junior gold mining ETF trades an average of over 6.26 million shares each day and charges a 0.52% management fee. GDX and GDXJ provide leveraged exposure to the gold price.

Meanwhile, the SPDR Gold Trust ETF is a pure-play on gold as it holds the metal. The fund summary states:

Fund Summary for the GDL ETF (Barchart)

GLD was at the $180.29 level at the end of last week, with over $68.7 billion in assets under management. The ETF trades an average of over 9.8 million shares each day and charges a 0.40% management fee. GLD is more liquid than GDX and GDXJ. While the gold ETF underperforms GDX and GDXJ on the upside, it tends to outperform during price corrections.

As of April 22, GDX and GDXJ were 15.3% and 8.8% higher, respectively, since the end of 2021. Meanwhile, GLD was 5.5% higher so far in 2022. The performance and trends in the GDX and GDXJ ETFs point to higher gold prices, supporting the GLD ETF.

APS Is Long GLD

As of April 22, 2022, the trend in GLD shares was higher. The APS was long GLD shares as the trend is always your best friend in all markets. APS holds ten highly-liquid and optionable stocks and ETF products. GLD is a component as it meets the strategy’s requirements. At $180.29 per share, the ETF has been trending to the upside, making higher lows and higher highs.

Following trends via an algorithmic system requires strict adherence to rules. We do not attempt to pick bottoms or tops in any markets and are typically short at bottoms and long at tops. Taking the most significant percentage out of trends requires removing emotional impulses from trading and investing. We ignore fundamentals, news, and all of the daily noise. Our signals are never intraday, and they can only change at the end of a session. Our system does not get caught up in the daily frenetic trading activity. News and noise are at a frenzied level with the war in Ukraine, inflation raging, and pundits opining on the central bank’s next move. We ignore the noise. The APS is always long or short its components.

The price of any asset is always the correct price because it is the level where buyers and sellers meet in a transparent environment, the marketplace. Crowd behavior that determines trends can be the optimal market approach across all asset classes. As of April 22, the crowd’s wisdom points to a bullish trend in GLD. The APS will issue a sell signal for the GLD ETF product when the trend changes.

Looking to reduce the stress of making trading and investment decisions by eliminating emotions from the equation?

The Algo Portfolio System (APS) allows the markets to work for you instead of having you work for the markets. The portfolio uses only high-quality, highly liquid stocks and ETFs. It is always long or short, so it does not miss any significant price trends. We have found that the APS offers a 66%-win rate over time. Drawdowns are part of investing and trading. However, sticking with the program over the long term increases the odds of success. Sign up for today for a free trial!

This article was written by

Disclosure: I/we have a beneficial long position in the shares of GLD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Written by
Nathan Tarrant
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Written by Nathan Tarrant