Gold Stocks Gather Steam

Gold stocks’ young upleg is gathering steam, marching steadily to higher lows and higher highs. These bullish technicals are gradually improving sentiment, fueling mounting interest in this contrarian sector. That’s helping the gold stocks regain lost ground relative to gold, the driver of their profits. Fundamentals are growing more favorable as gold itself powers higher. All this portends much-bigger gold-stock gains coming.

Despite a strong rebound upleg in recent months, the gold miners’ stocks are still flying under the radars of most speculators and investors. They aren’t aware the gold stocks are running again, and likely don’t realize how massive gold-stock uplegs can grow. That’s unfortunate because the biggest gains are won early in young uplegs before they are universally recognized. Buying low early on is the key to multiplying wealth.

The most-popular gold-stock benchmark these days is the GDX VanEck Vectors Gold Miners ETF. It was launched way back in May 2006, giving it a first-mover advantage that has grown into an insurmountable lead. This week GDX’s net assets of $10.5b were a colossal 52.4x larger than the next-biggest 1x-long major-gold-miners-ETF competitor!GDX is the lens through which most traders now view gold-stock fortunes.

And they’ve been excellent in recent months, with GDX boasting performance well-outpacing gold as well as the general stock markets. This first chart looks at this sector ETF’s price action over the last several years or so. That’s technically been a gold-stock bull because gold itself remained in a bull market over that span. Since gold overwhelmingly drives gold-stock performance, it defines gold-stock bull-bear cycles.

(Click on image to enlarge)

In mid-September, GDX shares plunged to a deep 2.6-year secular low. That was fueled by an extremely forced capitulation in gold-stock shares, the result of stop losses being sequentially triggered in cascading fashion. The GDX price action of recent years setting the stage for this latest low and subsequent upleg is important to understand, and I’ve written recent essays explaining it. Today’s focus is the young upleg since.

It’s actually been quite impressive, and more traders will soon take notice. After bottoming at $17.57 on September 11th, GDX started powering higher in the tight well-defined uptrend bracketed above. Despite the incredibly-bearish sentiment you’d expect after a capitulation plunge leading to major lows, the gold stocks started marching higher on balance. Their young upleg has gathered steam and achieved much since.

GDX has carved a textbook-perfect series of higher lows and higher highs. That inexorably pushed it to a major triple breakout in late December and early January. GDX clawed back above three major overhead resistance lines. The first was the longstanding $21 support of GDX’s prior consolidation basing trend, which had persisted for 21.5 months before early August. Following a major breakdown, it became resistance.

The second was the downward-sloping resistance of a bearish descending-triangle technical pattern that had formed since GDX crested in early September 2017. And the third and most important was GDX’s 200-day moving average, shown in black in this chart. Seeing GDX overcome all three of these major overhead resistance zones in short order was a very bullish sign implying gold stocks were off to the races.

At best so far their young upleg per GDX has powered 29.1% higher in 4.7 months! That’s impressive by any standard. For comparison, the S&P 500 broad-market stock index actually fell 6.4% during that span. And gold only rallied 10.3% in its own parallel upleg, so the major gold stocks have enjoyed good 2.8x upside leverage to the metal which drives their profits. That’s on the high side of the typical 2x to 3x range.

GDX has pulled back modestly since hitting its latest upleg high on January 31st, which was a breakout above its uptrend channel. Mid-upleg retreats within trend are perfectly normal and expected. They keep uplegs healthy and extend their longevity by periodically bleeding off excess greed. Without pullbacks, it would flare bright enough to suck in enough near-future buying for the upleg to prematurely exhaust itself.

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