Gold-Stock Upleg Accelerates

This young gold-stock upleg is accelerating, with fast-rising prices enticing in more capital. This sector has surged sharply to multiple major upside breakouts in recent weeks, which is starting to turn skeptics into believers. Despite their strong upside momentum being chased, gold-stock prices remain far from overbought levels warning of impending selloffs. This mounting upleg still has great room to power way higher.

Gold miners’ earnings are highly leveraged to prevailing gold prices, which drive this sector’s upleg and correction cycles. In early March as the last extended gold-stock correction was bottoming, I wrote an essay on gold’s momentum selloff. It concluded with “the gold-futures selling that ignited all this is finite and is likely nearing exhaustion. After that, gold should rally hard.”We were positioned for a new upleg.

At that major bottoming, the trading books in our newsletters were full of fundamentally superior gold miners’ stocks. We added and recommended them leading into that at low prices when they were deeply out of favor. A few weeks later, I wrote another essay analyzing the latest quarterly results from the mid-tier gold miners. They are in the sweet spot for stock-price appreciation potential when gold powers higher.

Still out of favor, they had just reported one of their best quarters ever. Their production growth was way better than their larger peers’. And thanks to the still-high prevailing gold prices despite its last correction lingering, these elite gold miners reported record revenues, earnings, operating cash flows, and cash treasuries! Their fundamentals are outstandingly bullish yet their stock prices continued to mostly languish.

But the gold stocks were stealthily climbing on balance, as evident in their leading benchmark the GDX VanEck Vectors Gold Miners ETF. A couple of weeks later in still another essay, I explained why another gold-stock upleg was underway. GDX had poked its head above its correction-downtrend resistance and its 50-day moving average. And its technical performance since bottoming looked very young-upleg-like.

My young-upleg thesis advanced in early April was met with a lot of skepticism and even hostility. From the feedback I got, it seemed like most traders were convinced the gold stocks still needed to drop much lower before a new upleg could get underway. Sentiment staying bearish is typical after any bottoming, as traders extrapolate recent conditions out into the indefinite future. Their festering doubt was a bullish sign.

And that contrarian new-upleg-growing analysis has since been vindicated in spades. In the past couple of weeks, GDX has blasted sharply higher cementing its strong uptrend. Naturally, this accelerating gold-stock upleg is working wonders for sector psychology, attracting traders back to this battered sector to chase those mounting gains. That has shifted the tenor of what I’m hearing from speculators and investors.

A couple of weeks ago, that was mostly “Adam you are wrong, the gold-stock correction is very much alive and well and will pummel this sector much lower.”Few were bullish like they should’ve been when gold-stock prices were considerably lower. Now I’m largely getting “Did I miss this gold-stock move, is a selloff looming?”After such big-and-fast gains, traders fear this sector will soon roll over again into another selloff.

This latest GDX chart shows the recent blistering gold-stock surge, which decisively broke out above both this leading sector benchmark’s correction-downtrend resistance and 50dma. But despite rallying sharply, the gold stocks remain relatively low. While they may be short-term overbought, they have a long ways to run until they get overheated enough to threaten this upleg. It still looks young technically, a bullish omen.

(Click on image to enlarge)

Bull markets power higher in a series of alternating uplegs followed by corrections. While the latter sure aren’t fun for traders not prepared for them, they are very important for bulls’ longevity. They are utterly essential for rebalancing sentiment, eradicating the excessive popular greed that flares late in major bull uplegs. That ensures the bull doesn’t burn out prematurely, sucking in too much future buying too soon.

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