Gold Stocks’ Spring Rally 6

Strong spring seasonality is just a minor reason. Seasonals are a secondary driver, unable to override gold stocks’ primary drivers of sentiment, technicals, and fundamentals. Seasonals act more like prevailing winds, either boosting or hindering wherever gold stocks would normally be heading based on gold’s price action. But given this year’s spring-rally setup, these strong seasonals are likely to prove stiff tailwinds.

Because of the recent gold and gold-stock corrections, and subsequent long bottomings and basings, sector psychology is really bearish. Traders are seriously pessimistic on gold stocks, expecting to see them keep spiraling lower with the metal they mine. This is the perfect sentimental backdrop to birth a major new bull-market upleg! Everyone susceptible to being duped into selling low is out, leaving only buyers.

Technically the gold stocks have been really beaten down in recent months, first when their correction initially bottomed in late November at a 24.9% GDX loss. A nice uptrend formed in December but faded in January as a sharp gold selloff dragged the miners lower. That ultimately culminated in a miserable correction-low retest in late February. Bombed-out oversold technicals birth new bull-market uplegs.

Bearish traders are overlooking fantastic fundamentals for the gold miners. Their Q4’20 earnings season underway is likely to prove their most profitable ever as a sector. The GDX-top-25 gold miners dominating that ETF and the HUI are likely to report unit profits soaring around 65% year-over-year! That will make for their sixth quarter in a row seeing 50%+ YoY growth! The gold miners are thriving with higher gold levels.

With gold stocks deeply out of favor sentimentally and battered technically despite super-strong profits fundamentals, this year’s spring-rally setup is outstandingly-bullish. The gold stocks are poised for major gains in their next upleg, which will likely partially coincide with that spring-rally span. That means this sector’s strong seasonals in April and May will likely act as fierce tailwinds helping catapult gold stocks higher.

Add in that seasonal-mean-reversion dynamic after this sector’s winter rally failed due to that correction, and those 22%-to-33% spring-rally gains in GDX aren’t a stretch at all. If gold stocks’ next upleg really gets humming, powering higher attracting in lots of capital, 50%+ is possible! Last year’s spring rally saw GDX skyrocket 79% higher, although much of that was anomalous rebounding out of a rare stock panic.

With so much upside potential in this contrarian sector, it is important to get deployed in fundamentally-superior gold stocks and silver stocks if you haven’t yet. We’ve been doing that in our newsletters since late November, layering into great gold and silver miners. The current count is up to 19 and 8 new trades in our weekly and monthly. These excellent gold stocks should well outperform GDX during the spring rally.

The bottom line is gold stocks often experience a strong spring rally seasonally. This is driven by gold’s own seasonality, where outsized investment demand arises at certain times during the calendar year. Gold usually enjoys a solid spring rally likely fueled by the universal optimism this season brings. And since gold drives gold miners’ profitability, their stock prices naturally follow it higher and amplify its gains.

This year’s spring-rally upside potential is much bigger than usual. After a correction steamrolled their winter rally, the gold stocks are way behind seasonally. That positions them for a major mean-reversion surge on very-bullish sentiment, technicals, and fundamentals. The strong spring seasonals should act as a stiff tailwind accelerating gold stocks’ gains in their next upleg. This is one heck of a spring-rally setup!

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