• 142 days Could Crypto Overtake Traditional Investment?
  • 147 days Americans Still Quitting Jobs At Record Pace
  • 149 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 152 days Is The Dollar Too Strong?
  • 152 days Big Tech Disappoints Investors on Earnings Calls
  • 153 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 155 days China Is Quietly Trying To Distance Itself From Russia
  • 155 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 159 days Crypto Investors Won Big In 2021
  • 159 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 160 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 162 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 163 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 166 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 167 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 167 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 169 days Are NFTs About To Take Over Gaming?
  • 170 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 173 days What’s Causing Inflation In The United States?
  • 174 days Intel Joins Russian Exodus as Chip Shortage Digs In
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Gold Stocks: Extended but More Upside Potential

What a move in the gold stocks! The sector has refused to correct for more than a few days at a time. All weakness has been bought as a wall of worry has been built and the sector emerges from a historic low that could be on par with the 1942 low in the stock market. I thought the Federal Reserve statement or reaction to it (along with the market's overbought condition) might cause the sector to correct this week. Instead, GDX and GDXJ powered higher and have gained roughly 13% for the week.

The weekly candle chart (below) shows both GDXJ and GDX are in breakout mode. GDXJ moved beyond previous resistance at $32-$33 and has upside targets at $43-$45 and even $50. Meanwhile, GDX has surpassed resistance at $22-$23 and now has upside to $27-$28 and $30. Furthermore, the 38% retracement of the entire bear in GDX is at $32. Do note that the miners have gapped higher in each of the past two days. For the sake of the bulls on the sideline, I hope to see an immediate pullback in the days ahead.

Market Vectors Gold Miners and Junior Gold Miners Daily Chart

The gold stocks are already very overbought and if they continue higher unabated then we will have to worry about a potential sizable correction. The chart below shows GDX's parent index (GDM) along with two oscillators which plot its distance from its 100-day and 200-day exponential moving averages. The oscillators show the gold stocks are the second most overbought they have been in the past 22 years. The most overbought point was early 2002 when GDM corrected 37% before climbing much higher.

Market Vectors Gold Miners Daily Chart

Before we worry about a sizeable correction, let me point out some very important data. The 2002 correction began when GDM and HUI rebounded 212% and 311% respectively from the major low in 2000. Thus far, the two have rallied 100% and 128% respectively.

Furthermore, the gold stocks are only three months removed from what could be the greatest buying opportunity of all time in the sector! While this is a sensational statement, it is rooted in data and facts and not your typical gold bug doomer porn. In short, there are three major similarities between the recent bottom in the gold stocks and the 1942 low in the stock market which arguably proved to be the greatest buying opportunity ever. I discuss and analyze the similarities in this video.

To conclude, the gold stocks have emerged from a historic bottom, have more upside but will eventually correct. How much they correct and when depends on how fast they reach their upside targets and what specific levels they reach. My current guess is anywhere from 25% to 35%.

 


Consider learning more about our premium service including our favorite junior miners which we expect to outperform in 2016.

 

Back to homepage

Leave a comment

Leave a comment