Gold has been a hot commodity over the last few months as the U.S. dollar has tumbled. The trend picked up some momentum after the Federal Reserve said last week that it was shifting its focus from fighting inflation to fighting deflation — and would consider another round of money-printing to support its efforts.
As a result, since July 28 the Gold Trust SPDR (NYSE: GLD) has climbed 12.7% and the Market Vectors Gold Miners (NYSE: GDX) has gained 20% while the S&P 500 only managed to add 2.8%. Gold-mining stocks have even outperformed the broad index since stocks put in a low on Aug. 26.
But now there are signs that gold-mining stocks are poised for a meaningful pullback. Despite the push to new highs by gold prices, mining stocks Kinross Gold (NYSE: KGC) and Newmont Mining (NYSE: NEM) have lagged behind. A similar “negative divergence” warned to trouble back in June. Let’s take a look at a few examples of the weakness that has begun to plague the industry group.
Kinross looks particularly vulnerable as it struggles at overhead resistance from prior highs set earlier in the year. The full stochastic indicator has set a lower low over the past month — a pattern that was seen prior to pullbacks in March and May. A fall to support near $17.50 is probably in order.
Silver Standard Resources (NASDAQ: SSRI
) also looks like it’s headed lower. Shares have stalled near springtime resistance over the past three weeks. And with related stocks like Minefinders (AMEX: MFN) and Northgate Minerals (AMEX: NXG) posting big declines of 8.5% and 6.9% respectively on Wednesday, I think SSRI is next.
On balance, volume suggests that investors have used the rebound rally to the May high to reduce positions rather than accumulate more. Not a good sign.
Be sure to check out Anthony’s new investment advisory service, the Edge. He can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.
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