While most investors were focused on the solid uptrends of the S&P 500 and Nasdaq in 2024, it's worth remembering that gold pretty much matched the performance of the equity benchmarks through the course of the year. With stocks facing renewed headwinds in the new year, gold just may be the way to ride out this period of market uncertainty.
The SPDR Gold Shares (GLD), which tracks the price of gold, peaked in late October 2024, shedding just over 8% of its value before stabilizing in the $235 to $250 range. While the RSI had been firmly in a bullish range through most of 2024, this key measure of price momentum spent most of Q4 in a neutral range between 40 and 60. If and when GLD breaks above resistance at $250, ideally with an RSI reading above 60, that would signify a breakout of this rangebound pattern on improving momentum. And similar to breakouts in March and August 2024, the initial breakout above resistance could lead to much further upside potential for this traditional safe haven. While the chart of gold appears to be setting up for an upside breakout, the real money could be in playing gold stocks instead. Comparing GLD with the VanEck Vectors Gold Miners ETF (GDX) reveals that the two ETFs experienced very similar returns until that October 2024 peak. While GLD dropped about 8% off its October high, GDX was down over 22% into a December 2024 low. We can see a clear performance gap between the two series, confirming that gold stocks have been dramatically underperforming gold over the last three months. Perhaps a 'catch up' trade is in the cards, where gold stocks close the gap with stronger gold prices? While GLD shows a clear consolidation phase, GDX remains in a short-term downtrend of lower highs and lower lows. A countertrend rally in December stalled out at the 50-day moving average, and the most recent downswing took out the 200-day moving average for the first time since early 2024. The RSI remains in a bearish range, currently sitting right around a neutral level of 50. On the positive side, the PPO indicator recently confirmed a bullish reversal, and GDX remains above the 61.8% retracement level based on the February 2024 to October 2024 uptrend. If GDX can follow through on this recent upswing to regain the 200-day moving average, ideally on stronger momentum readings with an RSI pushing above 60, that would confirm a new bullish phase for gold stocks. In terms of downside protection, we would consider this chart constructive as long as price remains above Fibonacci support around $33. Gold stocks to watch If gold stocks do follow through and rotate into a new bullish phase, identifying the strongest stocks in the group could help us identify new leadership for the uptrend. Kinross Gold Corp. (KGC) stands out as a top performer within the gold space, having recently pushed back above the 50-day moving average for a potential retest of its October high. The relative strength lines at the bottom confirm that while KGC is improving relative to the S&P 500, it has handily outperformed other gold stocks. When in doubt, I'll always look for top performing stocks in top performing industry groups. With growing fears of a more painful correction for stocks in Q1, investors may be well served by looking for other areas of potential strength. Given the resilience of gold in previous bear market phases, and the compelling technical setups outlined today, we feel the yellow metal could present a real opportunity to outperform