From the desk of Steve Strazza @Sstrazza and Ian Culley @IanCulley
We think it’s time to buy Gold Miners again, specifically the VanEck Vectors Gold Miners ETF $GDX.
The yellow metal has not been a great place to deploy capital over the last 6 months as the environment has significantly favored stocks over rocks... and risk-assets over defensive ones in general.
Owning Gold or Gold Miners has been nothing more but opportunity cost. However, there is mounting evidence that suggests now might be the time to jump back into this trade.
First, Commodities have really been working as an asset class. We’ve been pointing this out for months now, from Industrial Metals and Ags to even petroleum-based commodities.
Although through the early innings of this Commodities resurgence, Gold and Gold Miners have taken a back seat as prices peaked all the way back in the summer of last year and have been trending lower since.
We think that could be changing as we’re seeing signs of something brewing underneath the surface in Precious Metals. Let’s dive in.
Platinum’s recent strength along with the Silver/Gold ratio resolving higher from a 6-month consolidation bodes well for the space. Silver’s outperformance suggests healthy risk appetite and Platinum’s price action points to broader participation.
These are just some of the intermarket signals that suggest there’s potential for renewed strength from these shiny metals.
When we zoom out and look at the weekly chart of Gold Miners, the primary trend is still intact and price is retesting the same key level we highlighted last spring when the ETF just broke out from a 7-year base.
We wanted to be buyers of GDX above 31 back then. Fast forward to today, and we’re buyers against this same level once again.
Notice how momentum remains in a bullish regime as RSI hasn’t hit oversold on both weekly (above) and daily (below) timeframes.
On the daily chart price is testing a confluence of potential support as the lower boundary of a downward trend channel intersects with the breakout level at those key former highs.
This gives us a very favorable and well-defined risk/reward opportunity. When we also consider the potential bullish divergence and failed breakdown at November’s lows, how can we not swing at this pitch?
We want to be long GDX but only above that critical former resistance at 31 with a 2-4 month target at the 2020 highs around 44. If we’re below this level it’s someone else’s problem.
Long story short, Gold and Gold Miners are still in a primary uptrend and price is testing key potential support around the former breakout level, resulting in a skewed risk/reward setup at current prices.
At the same time, we’re seeing intermarket signals support a move higher such as the strength in other Precious Metals like Platinum and Silver, in addition to overall bullish action from Commodities as a group.
Not to mention, sentiment has really shifted into the dumps for Gold of late.
We believe this all comes together as an excellent opportunity and GDX offers us an ideal vehicle to take advantage of it at current levels.
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What do you think? Are you taking a swing at the miners here with us?
We hope you enjoyed this post.