The gold miners’ stocks have blasted higher in this young new year, far outpacing the broader markets. But surprisingly gold stocks’ trading volume has diverged from their powerful rally. Volume has actually been waning on balance since gold stocks’ newest upleg was born in mid-December. While volume is a complex nuanced indicator, this bullishly suggests that major gold-stock buying hasn’t even started yet.
Naturally price action is the most-important technical indicator, exposing underlying supply-and-demand trends for anything. The shares of precious-metals miners and explorers have surged this year because investor demand exceeds supply. The capital flowing into this beaten-down sector is overwhelming the numbers of shares sellers are willing to part with, bidding up stock prices and driving their sharp rally.
But the strength of rallies isn’t fully apparent through their price moves alone. Trading volume, how many shares change hands daily, is a critical secondary indicator. The strongest rallies advance on big high-volume buying, showing growing investor interest and broadening capital inflows. The more volume that drives any rally, the greater its momentum, staying power, and ultimate gains. Volume reflects vigor.
One of the many problems plaguing today’s radically-overvalued Fed-levitated stock markets is the low-volume buying driving recent years’ gains. Low volume reveals low conviction, traders begrudgingly buying shares in moderation since they doubt a rally’s durability. Low-volume rallies are often more the result of a lack of sellers than any meaningful buying. That’s what’s happening in gold stocks so far in 2017.
This post was published at ZEAL LLC on February 17, 2017.
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