Palisade Research - Mon, Apr 17, 2017

Gold Up $110, GDXJ Remains Flat - Get Ready For Gold Stock Rubber Band!

picture of a gold nugget on U.S. paper currency next to a matrix of stock prices under a jagged arrow moving higher

Last time the GDXJ closed around $36 was on March 13, 2017. Incredibly, during that time frame, gold is up $86 per ounce!

On January 10, gold was trading at $1,190 an ounce, $110 below its current spot price. Again, the performance of the junior gold miners has remained flat!

This is a stark reversal from 2016's action that saw gold stocks far outperform the price of gold. So what's next?

line graph comparing the performance of the GDXJ ETF of junior gold miners to the USD price of gold per ounce

Two scenarios can play out from here. The first would see gold coming back down to match the performance of the GDXJ.

The second scenario would see a rubber band effect in play. Gold stocks play catch up to the price of gold and then continue showing strength, forging the next leg of the gold stock bull market.

Since the beginning of 2017, gold has shown firm resolve, even in the face of a strong USD. Against a basket of foreign currencies, it is showing punishing strength. We see this as exceedingly bullish sign for the metal. Hence, we believe that the second scenario is more likely to play out.

Gold miners, especially juniors, have historically moved with gold in an exaggerated matter. This is because a dollar move in the precious metal equates to significantly more or less cash flow to the company. Because the GDXJ has not moved with the current appreciation in gold, this means any future increase in gold price can be met with added torque - very much like a rubber band.

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