Gold-Stock Gains Mount

The gold miners’ stocks are enjoying mounting gains, with their young upleg continuing to power higher on balance. Their recently-reported Q1 results revealed strong fundamentals, fully justifying better stock prices. The gold stocks have achieved major upside breakouts technically, and will soon trigger a major buy signal. Yet sentiment remains apathetic if not skeptical, so the lion’s share of capital inflows are still coming.

This small contrarian gold-stock sector is in a key transition zone. It has mean reverted sharply higher in recent months, but still hasn’t surged far enough yet to hit most traders’ radars. That is the tipping point when gold-stock buying becomes self-feeding when higher prices attracting in more capital coalesce into a virtuous circle. Then gold-stock uplegs grow huge as excitement and greed climb back to high levels.

The leading gold-stock benchmark and trading vehicle remains the GDX VanEck Vectors Gold Miners ETF. From early August to early March it was mired in a rare extended correction with gold, which is the dominant primary driver of gold stocks since their earnings leverage its fortunes. But since drooping back to $30.90 on March 1st, GDX has rallied a sizable 28.4% at best in 2.5 months to regain $39.68 in mid-May.

While already quite profitable for smart contrarian traders who bought in low when gold stocks were deeply out of favor surrounding that correction nadir, this upleg is still small and young. This secular gold-stock bull born in January 2016 has already seen four previous uplegs. They averaged massive 99.2% GDX gains over 7.6 months each! Near-doublings in individual bull-market uplegs are actually par for the course.

The previous secular gold-stock bull had literally a dozen uplegs averaging 87.5% gains over 7.8 months! That’s why traders put up with this volatile contrarian sector. When gold stocks are running, they tend to multiply wealth fast. And this current young upleg has a long way to go yet before exhausting its big upside potential. Given the deeply oversold conditions in early March, another doubling-plus is very likely.

The gold miners’ strong fundamentals certainly support much higher stock prices. I spent the past month wading through and analyzing Q1’21 operating and financial results from many dozens of gold stocks. The major gold miners of GDX reported soaring accounting earnings, as their profits margins were huge with $1,793 average gold prices compared to just $1,067 average all-in sustaining costs for mining this metal.

That profits proxy implied hefty sector profitability of $726 per ounce, the fourth-highest ever seen by the GDX-top-25 gold miners. As explained in a comprehensive essay on all this a few weeks ago, that was the seventh quarter in a row of fast-growing profits. By that measure, the major gold miners’ unit earnings had rocketed up 53.5%, 57.8%, 39.0%, 66.2%, 49.7%, 50.3%, and 25.3% year-over-year in that fantastic streak!

That generally left their classic trailing-twelve-month price-to-earnings ratios seriously undervalued. Plenty of major gold stocks were sporting P/Es in the teens and even single digits in mid-May as this latest Q1’21 earnings season wrapped up!So the gold miners’ outstanding fundamentals certainly support way-higher stock prices. But most traders aren’t aware yet, as they simply aren’t paying attention to gold stocks.

That realization point is probably coming sooner rather than later as technicals drive sentiment. This young gold-stock upleg is looking increasingly impressive, climbing sharply on balance carving a nice series of higher lows and higher highs. The major gold stocks per GDX have already achieved multiple key breakouts, and are on the verge of flashing a super-important buy signal. That will spark some enthusiasm.

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