After a relatively quiet period of consolidation, gold broke out today. Not only did the yellow metal rally over $20/oz to new all-time highs, the world's largest producers gained billions in market cap as shares of Goldcorp (NYSE:GG) and Barrick (NYSE:ABX) soared by over 5%. Analysts are confused by the action on an otherwise quiet trading day.
Technical analysis will point to a classic ascending wedge pattern, defined by a trading vehicle reaching the upper limits of a range on decreasing volatility. I recently explained why I believe gold and silver have a long way to go before they enter bubble territory. Still, a specific catalyst on April 5th was not apparent.
Three very telling factors suggest this is just the beginning of a much larger move:
1. Shares of producers massively outperformed metals on a subpar day for stock markets. From serial underperformer Yamana (NYSE:AUY) to recent breakouts Gold Fields (NYSE:GFI) and Richmont (NYSEMKT:RIC), almost every mining company with solid operations now sits at multi-year if not all-time highs.
2. Gold matched gains in silver (almost). Silver is generally two or three times as volatile as gold, yet today the white stuff seemed to spectate and cautiously keep pace while gold was bought up relentlessly. I've been thinking that recent stock market strength, stagnant gold, and highly volatile yet directionless silver has scared traders away from precious metals. Gold relatively outperforming silver also suggests a lack of speculative activity and that smart money was behind today's move.
3. Volume was steady, not climactic. Short covering and panic buying surely took place in the metals market today, but the methodical ascent suggests accumulation was the underlying driver of the rally.
If for some reason your portfolio is still missing exposure to gold and silver, waiting for a pullback may be a life long journey. I'd suggest slowly scaling into the safest instruments for your personal preference. If you're opposed to owning actual coins or bars, start with shares of Barrick and/or Goldcorp.
Disclosure: I am long BVN.