• 368 days Will The ECB Continue To Hike Rates?
  • 368 days Forbes: Aramco Remains Largest Company In The Middle East
  • 370 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 770 days Could Crypto Overtake Traditional Investment?
  • 775 days Americans Still Quitting Jobs At Record Pace
  • 777 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 780 days Is The Dollar Too Strong?
  • 780 days Big Tech Disappoints Investors on Earnings Calls
  • 781 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 783 days China Is Quietly Trying To Distance Itself From Russia
  • 783 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 787 days Crypto Investors Won Big In 2021
  • 787 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 788 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 790 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 791 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 794 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 795 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 795 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 797 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

Major Summer Rebound in the Gold Stocks

Though we've anticipated this rebound since late spring (albeit way too early), it is just about here and will pay big rewards to those who are long. A few weeks ago we wrote 6 Reasons why Gold Stocks will Begin a Big Rally. Since then, the action has been increasingly positive. In four of the past seven days, GDX closed near the high of the day and formed a strong white candle. In the other three days GDX closed well off the lows of the day. The action of the past seven sessions is a sign of accumulation. During these days the sector has performed well in the last 30 minutes of trading (which is when the smart money is most active). We will explain why we are even more confident that a big rally is days away from beginning and why it could continue until late September.

GDX's price action appears to show a developing reverse head and shoulders bottom. If GDX closes above $31 then it brings a potential target of $35.50 into play. Aside from the bullish price action there are two other important points. Note that the hourly RSI is acting bullish for the first time in many months (yellow). The RSI pierced 70 to the upside and is holding in bullish territory while the market consolidates. Also, the miners have been outperforming Gold. The stocks lead the commodity at key turning points. Gold has struggled to break free but the fact that miners are showing more strength is encouraging for the entire sector.

Market Vectors Gold Miners Chart

Six days ago the miners gapped up and the majority of the sector (as well as GDX, GDXJ, SIL continues to hold the gap. Checking back to 2008, (chart below) we find that GDX gapped up many times and left three open gaps that were never filled. Two of these gaps occurred immediately after higher lows. The gap from six days ago occurred less than 48 hours following a higher low.

Market Vectors Gold Miners Chart 2

In studying history, we found that following four major bottoms (1969-1970, 1976, 2000, 2008) gold stocks rallied back to the 400-day moving average in an average time of roughly 4.25 months. Currently, GDX has strong resistance at $39, its 38% retracement of the 2011-2013 bear is at $41 and the 400-day moving average is at $45.70 and falling. Four months from now the 400-day moving average should be below $42. In any event, the $39-$41 region is setting up as a potential strong target following the aforementioned $35.50.

Market Vectors Gold Miners Chart 3

If GDX reaches $39 by October then that is a 50% rebound in less than five months. History suggests this is not extreme. In the chart below (which uses weekly data) we show the performance of the gold stocks following their most oversold points within the two secular bull markets. The biggest rebounds followed the 2000 and 2008 lows. Note that the rebounds accelerated in earnest about five weeks after the bottom.

Gold Stock Bull markets: First 4-Months

Traders should use the low in late May (on GDX & GDXJ) as a stop.

Some may decry our analysis because Gold has yet to break $1420 and Silver has yet to break $23. At market extremes and turning points its best to focus on the stocks as they are the "tell" for the sector and the commodity. We are aware that there are huge short positions in Gold and the unwinding of those positions will add further fuel to the rebound in both the metals and the shares.

Furthermore, a fall in the S&P 500 will not affect this rebound. It will actually help. Since September 6, 2011 the S&P 500 is up 40.6% while GDX is down 53.3%, Silver is down 45.7% and Gold is down 24.0%. There is a clear long-term negative correlation between equities and precious metals. This was also the case from 1972 to 1977 before Gold accelerated into its bubble phase and from 2001-2002. Precious metals can and will perform well when the S&P corrects or goes sideways.

It's been a tough road for precious metals but the path ahead has strong potential of being significantly profitable and in a short period of time. The buying opportunity that we've spoken of for months is now here. When precious metals equities rebound, they rebound violently.

Good Luck!


If you'd be interested in our analysis on the companies poised to recover now and lead the next bull market, we invite you to learn more about our service.


Back to homepage

Leave a comment

Leave a comment