Upside Reversal for Gold Miners

During the past two weeks, with the aid of much lower oil prices positively impacting mining costs, the technical set-up in the Market Vectors Gold Miners ETF (GDX) has improved significantly. The GDX has hurdled and accelerated away from a confluence of upturning weighted trading moving averages, while those same averages are about to bear down on the rising SPDR S&P 500 (SPY) price structure. This should be an impediment to upside continuation in the overall S&P 500/equity market, but not to the miners.

A separate relative strength chart indicates that the junior gold miners -- Market Vectors Junior Gold Miners ETF (GDXJ) -- have outperformed the SPY since mid-May. This argues that in a down market the miners will hold up better than the overall S&P 500, while in an up market the miners climb faster and to a greater magnitude than the SPYs.

Comparing the gold miners to gold bullion, as represented by the SPDR Gold Shares (GLD), since early May 2012 the ratio between the GLD and the GDX has contracted significantly, reflecting a reversal in relative performance that shows that the GLD is underperforming the miners.