Gold Green-Lights Miners

Interestingly GDX’s latest major interim low was carved a week before gold’s, on that Tuesday leading into Thanksgiving. Shrewd contrarian gold-stock traders try to anticipate major trend changes in the yellow metal, and at that point, it was becoming apparent gold’s correction was maturing. That was the very day we started layering into new fundamentally-superior gold-stock trades in our subscription newsletters.

The bullish case for gold stocks in the coming months is strong. While gold’s next bull-market upleg is the essential linchpin, the gold miners’ fundamentals continue to rapidly improve really bolstering their upside potential. When bearish sentiment and oversold technicals combine with strong fundamentals, the moves higher can be massive! Consider a quick proxy for the GDX gold miners’ earnings I analyzed in mid-November.

They had just finished reporting their Q3’20 operational and financial results then, including averaging all-in sustaining costs of $1028 per ounce. That was far below last quarter’s record $1912 average gold price, fueling huge sector profitability of $884 per ounce! That had soared an awesome 49.7% year-over-year from Q3’19 levels. And that stunning earnings growth for the gold miners is going to persist into Q4.

While gold has been correcting this quarter, its Q4’20-to-date average price as of the middle of this week is still running way up at $1879. No matter what gold does in the next few weeks, that is going to prove the second-highest ever witnessed well above Q2’20’s $1714. Even if gold’s average price this quarter is dragged down to $1850, gold-mining profits are going to skyrocket based on the GDX majors’ likely AISCs.

They averaged $969 per ounce over the last four reported quarters. If that holds into Q4, the gold miners could again earn $881 per ounce nearly equaling that Q3 record! That would make for another enormous 59.7% YoY gain. So it is not just bearish sentiment and oversold technicals in both gold and the gold stocks arguing for big upside, but the wildly-bullish fundamentals both major and mid-tier gold miners are enjoying.

Even if gold’s correction isn’t quite over yet, its maturing has green-lighted aggressively redeploying in fundamentally-superior gold stocks. That process occurs over a couple of months or so, gradually adding new positions attempting to straddle gold’s ultimate correction bottoming. That layering in of new trades over time lowers portfolio risks while upping the odds of buying in relatively-low to ride gold’s next major upleg.

So that’s exactly what we’ve been doing in our subscription newsletters over the last couple weeks or so, slowly redeploying in great new trades. Buying low and selling high can only be accomplished if there is still plenty of uncertainty when those trades are being executed. By the time major correction bottomings and upleg toppings are readily apparent to all well after the fact, the best gains have already been won.

The bottom line is this gold bull’s latest correction looks to be mature sentimentally and technically. This selloff’s total size and duration at gold’s late-November lows was right in line with averages from this bull’s prior three corrections. Gold also fell back under its 200-day moving average, the strongest support zone for bull-market corrections. All this argues that the lion’s share of gold’s correction is behind us, if not finished.

That green-lights redeploying aggressively into fundamentally-superior gold stocks to ride gold’s next bull-market upleg. That should be done gradually over time, attempting to straddle gold’s ultimate correction bottoming. In addition to bearish sentiment and oversold technicals, the gold miners continue to enjoy super-strong fundamentals. Their earnings are continuing to soar with these still-high prevailing gold prices.

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