My work on gold bullion has been bullish since last August, when it was $1,295 an ounce. On Dec. 4, 2019, I wrote that I expected to see further strong gains in 2020. Year to date, gold is up 11%, at $1,734 an ounce—one of the few assets to have advanced over that period. In February, bullion broke out to the upside versus the stock-market indexes.
But now the more bullish story is in the gold-mining stocks rather than bullion. From now until year end, my work projects that the gold miners will outperform the S&P 500 index by a considerable margin.
First, let’s examine the price action of the NYSE Arca Gold Miners index. The monthly closing chart shows a decisive breakout from a four-year base last month when it hurdled 965. Before last month’s breakout, a trendline dating back to 2009 had been a formidable barrier. Having overcome resistance with ease, my work generated upside projections to 1300-1400.
Second and more exciting, the Gold Miners index is poised to outperform the S&P 500 by 25% to 40% by year-end. The second chart shows that the Gold Miners broke out of a three-year rounding base. Having gained the support of its various moving averages, the underlying base provides powerful support for the advance.
Why would gold-mining stocks outperform the stock market by such a wide margin? The Federal Reserve has been pumping liquidity into the economy at a rapid clip. Since last August, the Fed’s balance sheet has surged almost 80%. And the stock market’s technical condition is weakening and projecting lower prices.