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Gold mining stocks bearish divergence from XAUUSD

Gold mining stocks Barrick Gold and Newmont Mining show bearish divergence by not following gold’s recent gains. These stocks were leading indicators of gold price in 2016.

 

Leading indicators signal weakness

Stock price of Barrick Gold (ABX) and Newmont Mining (NEM) which proved to be excellent leading indicators of gold price last year is showing bearish divergence with XAUUSD. If this signal is true, we can expect some sort of correction in gold price.

Barrick and Newmont are the world’s second and third largest gold miners respectively. Both stocks terminated their previous year – year downtrend by printing a new 52-week high in March 2016, 3 months ahead of gold. Gold made it’s own new 52-week high day after Brexit.

Besides strong positive correlation between gold and stock price that is visible in an overlay, it is conceivable that investors in gold mining operations might also have unique foresight to price action of gold.

XAUUSD overlay with ABX and NEM weekly stock charts, late-2014 to present

XAUUSD overlay with ABX and NEM weekly stock charts, late-2014 to present

What we can see from this chart is when XAUUSD rallied again to retry the 1263 high made late February, ABX and NEM stock price did not follow. In fact, NEM did poorly if we compare price performance from December to present.

 

Technical picture of XAUUSD

XAUUSD has all the signs of a big bullish reversal based on it’s new 52-week high last year but short term, traders should expect zig zag price action to continue. Considering that gold price is now at resistance, that these 3 months it has only retraced only over 50% of last quarter’s losses, gold bears are still in control.

XAUUSD weekly chart 2014- present, painted in yearly and quarterly boxes

XAUUSD weekly chart 2014- present, painted in yearly and quarterly boxes

I still see XAUUSD retaining it’s upward momentum but it’s probably time to stand aside for the market to find out where support is.

52-week high is a strong significant level whose meaning should not be overlooked.

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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