Worrisome Divergence in Gold, Miners ETF Charts

March 16, 2009 | By: Jeff Pierce

The placement of the 200 MA in both of these charts is somewhat puzzling. Given the strength of gold since the November lows, one would think that the miners would be displaying equal strength. However this is not the case.

GLD, which is roughly 1/10 the price of gold, has had a series of higher highs and lower lows and is trading above its 200 MA. This is a bullish scenario, whereas GDX has failed to remain above its 200 MA and is looking like it wants to roll over. When you take a look at the volume patterns of GDX you’ll notice considerable selling pressure in the past few weeks and when it did manage a green day the volume was in most cases under its 60 EMA.

While I’m not ready to throw cold water on the rally in gold itself, I remain a skeptic as to whether mining stocks are going to benefit from the precious metal’s rise. Right now the pressure is on the bulls to close convincingly above its 200 MA in the gold miners ETF, or I would be looking to short the sector in the upcoming days.

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