Gold Miners Poised For a Breakout

• Posted by JC Parets
• on August 31st, 2011

The Gold Miners ETF ($GDX) has been stuck in this range between the low 50s and low 60s for about a year now. It’s inevitable that a breakout occurs in one direction or another. The upper end of the range and the lower end have each been tested 4 or 5 times since last Fall so the break should occur pretty soon.

When these sort of consolidations take place, I like to give the benefit of the doubt to the direction of the underlying trend.  In this case, the trend has been higher for a long time so we’re anticipating a breakout to the upside here. Look how powerful this decade long trend has been:

For now we are still stuck in this 10 point range for $GDX. Some of the big names that we want to watch here are Newmont Mining ($NEM), Barrick Gold ($ABX), Goldcorp ($GG), and some smaller holdings like Yamana Gold ($AUY) and Silver Wheaton ($SLW). These are a few of the components in $GDX.

To the downside, a break below the recent lows in the low 50s will force us to reevaluate our bullish stance. To the upside, a breakout to new highs into the mid-60s would confirm our bullish bias. It’s not a small range, which makes it more difficult for trend traders, so trading the individual names while using the ETF as a guide is probably our best bet for now. It make take a little bit more consolidation before a clear breakout, but I certainly don’t see this as a major top, so I’m buying dips.

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