Timing Gold-Stock Trades

With demand soaring for high-potential trades, newer speculators and investors shouldn’t overlook the gold miners’ stocks. For decades contrarians have used this volatile sector’s big swings to multiply their capital. Gold-stock uplegs yield massive gains, which are realized near toppings to weather subsequent corrections in cash. Timing entries and exits to ride the lion’s share of these major moves is fairly simple.

The gold miners’ stocks are ultimately leveraged plays on gold. Their earnings really amplify changing prevailing gold levels, so their stock prices follow. And gold’s fortunes are also silver’s dominant primary driver, which in turn drives silver miners’ profits and stock prices. So “gold stocks” is a generic term that really means precious-metals-mining stocks. Gold, silver, and their miners’ stocks tend to move in lockstep.

Fueled by secular gold bulls, gold stocks enjoy long-and-strong bull markets. Per the leading gold-stock benchmark which is the GDX VanEck Vectors Gold Miners ETF, this current specimen has run 256.7% higher at best over 4.5 years as of early August. That is still tiny by this sector’s wild standards, with the previous gold-stock bull soaring 1,664.4% higher over 10.8 years by September 2011 per the older HUI index!

Born in May 2006, GDX wasn’t around long enough to encompass that mighty earlier bull. That epic run included a dozen major uplegs and corrections, with the former averaging huge 87.5% absolute gains over 7.8 months! The latter rebalancing selloffs averaged 30.0% losses over 3.1 months. Riding uplegs and sitting out corrections generated enormous realized gains for contrarian traders gaming these big swings.

This young current gold-stock bull isn’t much different, seeing four uplegs and corrections so far. Through that GDX lens, they averaged huge 99.2% absolute gains over 7.6 months! The price of those were subsequent corrections averaging 33.6% losses over 6.9 months. Actively trading these big swings in this bull is far more lucrative than buying and holding. Again at best today’s bull is up 256.7% in GDX terms.

Yet its individual uplegs added up to much-larger 396.6% gains. There’s far-greater wealth-multiplying potential in riding uplegs and sitting out corrections than staying deployed. Since exact bottomings and toppings are impossible to know in real-time, the goal with timing gold-stock trades is to catch the middle 2/3rds or so of those big swings. Do that successfully for a few bull cycles, and your capital will just soar.

For decades now I’ve published weekly and monthly newsletters striving for this very goal. GDX’s last upleg was extreme, born out of March 2020’s COVID-19-lockdown-spawned stock panic. Over the next 4.8 months, GDX rocketed 134.1% higher. We realized 17 and 9 gold-stock and silver-stock trades in our newsletters during that span, averaging +81.3% and +83.6% absolute gains! This sector multiplies wealth.

Over the decades I’ve executed thousands of gold-stock trades, gradually developing and honing a gold-stock trading system that has proven very successful in real-time. And it is fairly simple, easy to apply even for traders not deeply immersed in this high-potential sector. To ride gold-stock uplegs and cash out before the subsequent corrections, the mission is to buy in relatively-low then later sell out relatively-high.

Defining “relatively-low” and “relatively-high” in real-time can be done subjectively. Major gold-stock uplegs tend to run for around 8 months or so on average. So simply looking at a 6-month GDX chart to see if that leading gold-stock benchmark is low or high within that timeframe is a solid eyeballed estimate. If GDX is near the bottom of its 6-month range, that is likely a good time to deploy capital in gold stocks.

But if GDX is near the top of that short-term chart, it is probably prudent to abstain from adding more positions then. This contrarian approach runs counter to traders’ natural instincts. We, humans, love to pile on and chase momentum, which means buying high. And we get scared when prices fall, leading to selling low. Buying high when gold stocks are exciting then selling low after they’ve fallen leads to big losses.

Buying in relatively-low can only happen following correction-grade gold-stock selloffs leaving this sector deeply out of favor and riddled with bearishness. If you are eagerly anticipating buying gold stocks, you are probably doing it at the wrong time! Buying in after major selloffs feels miserable, there’s a pit in your stomach fighting the herd. General consensus after corrections is gold stocks will keep spiraling even lower.

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