Gold is showing its most weakness in over two years...should investors be concerned?
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Precious metals have been at the forefront of the commodities’ space for the last several years. Gold and silver performance over the since the start of 2024 has been remarkable with gains of 123% and 201%, respectively. Compared to the S&P 500 Index’s (SPX) return of 38%, it’s easy to see why precious metals gained so much attention. Focusing on gold, its run higher was nearly unabated until the end of January. Pullbacks were mild and short-lived, but we have undoubtedly seen a change in character over the last few weeks. This could very well be due to derisking across assets as the conflict in Iran is approaching its fourth week, but it should be noted for those that may have significant allocations to precious metals. While the performance for the SPDR Gold Trust (GLD) has not been good of late, it is still in the black for the year with a return of 7.59% and has an outstanding fund score of 5.50. So, all is not lost for precious metals investors. However, recent movement should raise some eyebrows simply due to the different nature of movement than what has been the case for some time. A few major support levels to watch on GLD are $400, $370, and $365. In addition to support, keep a close eye on GLD’s fund score for any deterioration as it has not had a fund score below 3.0 since November 2022.
While the underlying commodity still has strong long-term technical readings, gold miners have deteriorated considerably in the month of March. The VanEck Gold Miners ETF (GDX) fell 28% so far in March and its near-perfect fund score has dropped below the acceptable 3.0 threshold. Along with a string of three consecutive sell signals a break into a negative trend, the technical picture is concerning at best. GDX is trading near support and has a heavily overbought/oversold reading of -76%, so there are conditions for a bounce. Nonetheless, the evidence suggests avoiding exposure to gold miners currently. The big question is if the miners are a leading indicator for the commodity itself. GLD and GDX have a monthly correlation of 0.92 over the last three years, so they are usually moving in the same direction. While the two have moved closely together, GDX has about 2.5x the rRisk as GLD, so it is much susceptible to big swings in both price and fund score. In the big picture, it seems better to put more weight on the state of gold rather than the miners, but they are still worth watching, especially if you have any allocation to gold.
