Gold Is Breaking Out
At long last the precious metal appears to be breaking out of its near nine month consolidation period following a strong run in 2019 and the first half of 2020.
While we were teased with a false breakout at the turn of the year, the landscape has changed for the precious metals since which leads me to believe we are set to see the sector continue its march higher.
Encouragingly, the miners have lead the metal itself on this breakout, a bullish sign for the sector.
Zooming out, a longer-term perspective is always helpful in seeing how healthy these sort of consolidation periods are during an uptrend. There appears to be plenty of upside potential ahead for precious metals.
From a sentiment perspective, gold is still being viewed relatively negatively on the whole. Whilst not at the attractive levels that provided the excellent buying opportunity back in February, the managed-money positioning in the futures market (i.e. hedge funds and CTA’s, who love to be long and the tops and not-so-long at the bottoms) is still at a level that has proved to be attractive buying opportunities in the past.
The same can be said of the miners bullish percent index ($BPGDM).
Similarly, fund flows out of the GLD ETF look to have completely washed out the weak hands.
Seasonality also looks to be painting a rosy picture for the next six months.
Should this breakout hold, the miners are the place to be and look set to recommence their upside outperformance relative to gold.
Compared to the broader equity markets, the price action again appears favourable for the miners.
Fundamentally, the miners are very attractive also.
Source: Tavi Costa - Crescat Capital
As I mused upon recently, we have had several very favourable opportunities for those bullish precious metals to add to their core long-term holdings, should these breakouts hold, it now appears to be an excellent opportunity to get tactically long the sector. One would expect the smaller gold and silver miners to outperform in such times. Best to take advantage.
