Gold, Miners: How Long Will Short-Term Rally Last?

Let’s consider what the GDX and GLD did on an intraday basis yesterday.

ChartDescription automatically generated with medium confidence

Figure 2 - VanEck Vectors Gold Miners ETF (GDX) and Gold ETF (GLD) Comparison

As I already wrote, mining stocks rallied to new monthly highs, and the above 4-hour chart (each candlestick represents 4 hours of trading) makes it crystal-clear that the late-February bottom was the moment after which miners stopped declining and started to trade sideways. Gold (here: the GLD ETF, which I’m using to have an apples-to-apples comparison – both ETFs trade on the same exchange) continued to decline in March. Well, to be precise, miners did form new yearly lows in March, and we went long almost right at one of those intraday lows, but the moves were not significant enough to really change anything.

So, since miners no longer wanted to decline, and there were only two other things left for them to do: either nothing or rally.

They had been doing nothing for several days, due to the lack of bullish leadership in gold. They just got this leadership yesterday, and they soared.

Now, let’s keep in mind what I wrote in yesterday’s intraday Alert – namely, that mining stocks tend to rally particularly well in the initial part of the upswing, and then they underperform during the final part of the rally. So, when gold is above $1,750 or so, miners might already be rallying to a limited degree. Consequently, miners might rally above $34.27, but that is far from being certain. They might actually rally slightly less – perhaps to exactly $34 or so.

I applied the Fibonacci retracement levels to the above chart, but I actually used them as Fibonacci extensions. My current upside target for gold is at about $1,770 (which corresponds to about $166 in the GLD ETF) and it’s at about $34 for mining stocks (GDX ETF). The Fibonacci extensions emphasize that if both targets were to be reached, then it means that gold so far rallied (intraday) about half of its entire rally, while mining stocks rallied (intraday) about 61.8% of their entire rally. This perfectly fits miners’ tendency to outperform in the initial part of a given move, which makes both price targets more reliable.

Having said that, let’s move to gold.

ChartDescription automatically generated

Figure 3 - COMEX Gold Futures

Gold rallied strongly after bottoming right in the middle of my target area and after moving almost right to its June 2020 bottom, and after almost doubling its initial January decline. Yesterday’s rally also meant invalidation of the brief breakdown below the 61.8% Fibonacci retracement level based on the entire 2020 rally. Thus, the very short-term trend is up.

Please keep in mind that the upswing might be relatively short-lived – perhaps lasting only one week or so. There’s a triangle-vertex-based reversal point on Monday, so it wouldn’t be surprising to see an interim top at that time, especially considering that:

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Disclaimer: All essays, research, and information found on the Website represent the analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong ...

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Erikas Ivan 1 month ago Member's comment

Thank you for providing exact and valuable service through your emails, Mr. Radomski. Spot on!

Przemyslaw Radomski, CFA 1 month ago Author's comment

Thank you!

Mar1kle 1 month ago Member's comment

Long term (Greater than 2 years...weekly chart), we bottomed in 2016. Medium term (Greater than 1 year...daily chart) we bottomed in Mar 2020. Short term (Less than 6 months 4 hour chart), we have not bottomed. Since Jan we have hit up against a well defined downward channel (shown on Daily and Hourly charts...days 1/29, 2/10, and 2/24), and have failed. Today that top part of channel sits at around 1800. The bottom part of the channel has been violated to the downside. Until we clear the upper line of this corrective channel we cannot say we have a short term bottom. The real question is what is the short term bottom price target and when will we get there. Options expiration next week has been a bloodbath this year for Gold. Short squeezes on highly shorted stocks seems to have also quietly picked up again (GameStop at 265). Options week will be interesting. Will Gold shorts panic and attempt to push the market down to get out of their highly leveraged short positions? I would not be long next week. As to a (short term) bottom.. I vote 61% retracement (measured from the 2018 lows to Jan 2021 High) around 1536. I think a major chunk of this will come next week. Then up from there

Przemyslaw Radomski, CFA 1 month ago Author's comment

Interesting point, thanks. I think we define short-term moves as something different. To me, a short-term move would be a weekly rally, for example - and I think we're more or less in the middle of one.

Carl Schwartz 2 months ago Member's comment

I think we bottomed.

Przemyslaw Radomski, CFA 1 month ago Author's comment

I think so too, but then again, I view this move as a counter-trend rally that would be likely followed by another move lower perhaps as early as next week.