Gold Divorces Itself from the Stock Market for a day…
Friday’s (May 1, 2020) positive action in gold stocks, relative to weakness in overall markets, is yet another sign of what’s to come.
Before going further, let me caveat an important point – a single day’s market action on its own does not mean much. When combined with other factors; however, it can help to build conviction on a trade.
Last Friday, the S&P 500 ended up down 2.81% taking with it most equities. Gold stocks as measured by the VanEck Gold Miners ETF (NYSE:GDX), closed up 3.19%.
Note from the chart above that gold stocks traced a mirror opposite of the action in the S&P 500 – an almost perfect negative correlation.
Not only have gold stocks demonstrated spectacular strength as the only sector to break out from pre-COVID highs, but on a day where the market exhibits weakness, gold stocks continue to thrive.
It is only a matter of time before investors, presently inattentive to the gold sector, hear about the gains being made and jump in on the trade.
Furthermore, fear amongst gold investors that a resumption in overall market declines could drag gold down with it, may be partially allayed. One day of trading does not mean much. But, if this trend continues, it would spell a major sea change for gold stocks, adding further conviction behind gold as a safe haven.
As we have written about in recent weeks, gold stocks have many things going for them –
- Major gold miners have broken out,
- Very few investors own gold stocks, and
- There is a long runway ahead for the sector.
Add to that Friday’s action in gold stocks versus the S&P, and there is yet another reason we are so bullish on junior resources here at Palisades Goldcorp.
Until next week,
Founder & Executive Chairman
Palisades Goldcorp Ltd.