Tactical Allocation Channel Gold prices are still up about 19% within the past year, but have stumbled to start the new year. As Treasury yields start to move higher, keep an eye on a pair of ETFs: the VanEck Vectors Gold Miners ETF ( GDX B+ ) and the VanEck Vectors Junior Gold Miners ETF ( GDXJ B ). GDX seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE® Arca Gold Miners Index®.
Source: As Gold Yields Grow, Watch Two VanEck ETFs Closely
The index is a modified market-capitalization weighted index primarily comprised of publicly traded companies involved in the mining for gold and silver.
Using a relative strength index (RSI) and moving average convergence divergence (MACD) indicators on GDX’s 3-month chart, we can see some buy signals potentially flashing amid the short-term weakness. The RSI is right in the middle of overbought and oversold levels, while the MACD’s exponential moving average (EMA) dipped just below the signal line.
GDXJ seeks to replicate as closely as possible the price and yield performance of the MVIS® Global Junior Gold Miners Index. The index includes companies that generate at least 50% of their revenues from gold and/or silver mining/royalties/streaming or have mining projects with the potential to generate at least 50% of their revenues from gold and/or silver when developed.
RSI and MACD once again show the same potential buy signals.
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Additionally, both GDX and GDXJ are currently below their 50-day moving averages.
“We’re not bullish gold, but we’re not 100% bearish either,” James Hyerczyk writes in FX Empire. “Our work suggests a rangebound trade for much of this year with support being provided by fiscal stimulus from the government and monetary stimulus from the Federal Reserve.”
“Inflation fears may be providing some support as aggressive speculative buyers bet that inflation will be driven by more U.S. fiscal stimulus under President-elect Joe Biden, but as prices inflate, the chances of the Fed ending their bond buying spree will rise. This too supports the notion of a rangebound trade,” Hyerczyk added.
Long-Term Bullishness Ahead?
The question now is what will gold prices do for the rest of 2021 as yields continue to climb and a stronger dollar could take hold of the markets.
“The long-term picture for gold continues to be well-supported, but over the short-run gold prices are likely to remain capped by a rebound in the U.S. Dollar and Treasury yields,” Hyerczyk wrote further. “Given the current rising yield environment, chasing gold prices higher probably carries the most risk unless the move is supported by an unexpected, rapid decline in yields. Therefore, your best opportunity to own gold at this time is following a break into a value area. Our work indicates that $1780.50 to $1705.20 is the closest value area.”
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