Gold-Stock Upleg Breaking Out

Adam Hamilton

January 4, 2019

 

The gold stocks’ young upleg is really growing, on a trajectory to become major.  This contrarian sector is breaking out to the upside on multiple fronts technically, which is really improving sentiment.  Traders’ extreme bearishness of late summer has mostly abated, with bullish shoots taking root.  Fundamentals certainly justify the mounting gold-stock buying, with earnings set to surge on higher gold prices in coming quarters.

This baby new year should prove far happier for gold stocks than 2018.  This sector’s performance is measured by the share price of the flagship gold-stock investment vehicle, which is the GDX VanEck Vectors Gold Miners ETF.  This week it held shares worth $10.5b in 46 major and mid-tier gold and silver miners from around the world.  GDX is now 60.1x larger than the next-biggest 1x-long major-gold-miners ETF!

2018 was rough for the gold miners, with GDX slumping 9.3%.  Weaker gold prices were to blame, as gold is the dominant driver of gold-mining earnings.  While the yellow metal recovered to a mere 1.6% loss last year, it slumped much lower in late summer.  By mid-August extreme record gold-futures short selling had pummeled it down 9.9% year-to-date.  That eviscerated gold-stock psychology, scaring traders out.

The major gold miners’ stocks suffered a brutal forced capitulation in that gold low’s wake as stop losses were triggered leading to cascading selling.  So by mid-September, GDX had cratered 24.4% YTD.  This bloodbath really turned traders off from this small contrarian sector.  But as I warned just days later back in mid-September near the lows, that extreme selling heralded the birth of a major new gold-stock upleg.

GDX has indeed powered higher on balance ever since, rallying 20.0% in 3.4 months by Christmas Eve.  That was fueled by the roughly-parallel young gold upleg that climbed 9.3% by the middle of this week.  Things are really looking up for the gold stocks.  Investors and speculators alike are starting to remember the big upside this small sector enjoys in major uplegs.  Key breakouts are confirming one is underway.

Several weeks ago I wrote an essay analyzing the imminent upside triple breakout in GDX.  Closing at $20.12 that day, GDX was on the verge of surging back over $21.  That is an exceedingly-important level for the major gold miners technically.  This updated chart shows why, and reveals the gold stocks are now enjoying their longest and best-foundationed upleg in years.  And it is going to grow a lot larger as gold rallies.

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