Gold Stocks’ Upleg Intact

The gold miners’ stocks have had a wild ride this month, surging then plunging. After hitting new upleg highs, the leading gold-stock benchmark collapsed in a sharp drawdown. That gutted bullish sentiment, bringing back worried bearishness. But despite that big swing, the uptrend of gold stocks’ young upleg remains intact. This sector is still marching higher on balance with gold, a bullish omen for further gains.

Price action in the financial markets is never linear for long. Asset prices perpetually flow and ebb, often chaotically from day to day. That reminds me of Mark Twain’s famous quote, “If you don’t like the weather... just wait a few minutes.”Volatility is a constant companion in the markets, forever toying with traders’ emotions. But over longer-term time horizons, this incessant daily noise tends to form tradable trends.

Keeping those in perspective is essential to achieving trading success. Viewing price action in broader trend terms rather than fixating on big daily swings greatly moderates greed and fear. Letting short-term volatility stoke those dangerous emotions leads to buying high and selling low, fueling losses. Borrowing from Ephesians’ wisdom, traders can’t be “tossed to and fro, and carried about with every wind” of price action.

January’s big gold-stock volatility must be considered as a whole to be properly processed and gamed. The leading and dominant gold-stock benchmark and trading vehicle is the GDX VanEck Vectors Gold Miners ETF. This week its $16.3b in net assets commanded a staggering 64% of all the capital deployed in all the American gold-stock ETFs! GDX’s wild price action this month highlights this sector’s serious swings.

GDX blasted 6.9% higher on 2021’s opening trading day of January 4th, hitting major new upleg highs which really excited traders. But later that week on the 8th, GDX plunged 4.8%. Another week after that on the 15th, it dropped another 3.1%. Then in the middle of this week, it surged 3.4% higher. This has to seem schizophrenic to traders fixating on day-to-day price action, violently capricious, and excessively risky.

But when these sharp swings are considered together, they continue to carve an uptrend in gold stocks’ latest young bull-market upleg. That is readily apparent in this GDX chart encompassing the past couple of years or so. Pay particular attention to the past couple of months’ price action, where big volatility has been giving myopic traders fits. Gold stocks are actually marching higher on balance, which is certainly bullish.

(Click on image to enlarge)

Gold stocks’ powerful bull market in recent years is a case study in contrasting price action. Massive uplegs rocket higher, rapidly multiplying traders’ capital. Gold stocks’ last one peaked in early August at enormous 134.1% GDX gains in just 4.8 months! But after shooting parabolic, this sector was extremely overbought riddled with excessive greed and euphoria. So a healthy rebalancing correction was necessary.

That indeed unfolded over the next 3.6 months into late November, where GDX fell 24.9%. Both this latest upleg and correction proved very volatile within their trend channels rendered here. Gold stocks’ high inherent volatility made for big and sharp countertrend moves in each. This sector advances in line with its prevailing trends then retreats. This two-steps-forward-one-step-back meandering is ubiquitous.

It also applies to bull-market uplegs due to the scaling fractal nature of the markets. Like the broader bulls containing them, individual uplegs flow and ebb. Gold-stock prices forever rise and fall, seemingly chaotically as apparent in this GDX chart. But considered together these daily swings gradually coalesce into uptrends, series of higher lows and higher highs. These are the backbones of wealth-multiplying uplegs.

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