The
gold miners’ stocks just achieved a rare secular breakout. This
huge technical milestone fueled by record gold levels reflects
sector sentiment growing more bullish. That is pushing gold stocks
closer to the crucial psychological tipping point where
more-mainstream traders increasingly chase their strong gains.
Multi-year highs generate broader interest, attracting more capital
inflows accelerating gold-stock upside.
The
GDX VanEck Gold Miners ETF has long been gold stocks’ leading sector
benchmark and trading vehicle. This was the original pioneering
gold-stock ETF, born way back in May 2006. GDX’s first-mover
advantage has grown into an insurmountable lead, commanding net
assets of $16.8b midweek. That nearly doubles the 13 next-largest
gold-stock ETFs’ combined net assets! GDX is this sector’s
juggernaut.
It
just enjoyed a rather-remarkable nine consecutive trading days of
rallying, blasting 13.7% higher in mid-October! That was fueled by
a parallel big 5.3% gold surge, which the major gold stocks
dominating GDX amplified by a good 2.6x. Historically GDX has
usually leveraged material gold moves by 2x to 3x. While certainly
an impressive win streak, it was only its last few days that proved
important technical milestones.
Gold
rapidly surged to extremely-overbought levels in late
September, dramatically upping the odds for a rebalancing selloff.
I analyzed gold’s
high selloff risk in-depth in an early-October essay. That
pullback indeed got to work, although it was retarded by soaring
geopolitical risks after Iran lobbed hundreds of ballistic missiles
into Israel! Still gold retreated a modest 2.4% over a couple weeks
into early October.
That
dragged GDX a proportional 6.8% lower, for larger 2.9x downside
leverage. That selloff started from this sector ETF’s upleg-to-date
peak of $41.64, leaving GDX well lower. But gold stocks were quick
to claw back their losses, with GDX rallying back to $41.49 last
Thursday the 17th. Both levels remained barely decisively above
GDX’s last major peak of $40.87 in mid-April 2022, yet still in that
resistance zone.
A
decisive breakout is exceeding an old closing high by 1%+, which
happened on September 24th when GDX closed over $41.28. But
technical analysis is subjective, with most support and resistance
lines on charts drawn by hand. So from a visual standpoint on a
multi-year chart, gold stocks still looked to be near major upper
resistance around GDX $41. They could easily still retreat,
forming a double topping.
This
gold-stock-technicals chart of recent years illuminates that $41
resistance zone. In order for that minor breakout mathematically to
become major psychologically, GDX had to blast considerably higher
into new chart territory. New highs had to look visually-striking,
which finally happened a week ago on Friday the 18th.
GDX soared a huge 4.0% higher that day,
indisputably achieving a major secular breakout!
It
was the best kind too, happening despite no real news. Gold did
rally 1.1% to its third record high in a row of $2,721, but there
was no Fed-dovish key economic data to drive that. Mounting
geopolitical fears heading into a weekend likely played a role, as
the world anxiously awaited Israel’s crippling retaliation against
Iran for that ballistic-missile barrage. GDX’s big 4.0% up day
amplified gold’s by a huge 3.7x.
Precious-metals sentiment lurched sizably to shifting bullish,
thanks to gold’s defiant October rally and that big, round,
psychologically-important $2,700 level being exceeded. Gold really
should have sold off considerably this month. Leading into
October, gold was not only extremely-overbought but speculators’
gold-futures longs had hit their
5th-highest
levels on record! So massive mean-reversion selling was likely.
And
recent weeks’ market conditions have been pretty bearish for gold.
The AI stock
bubble continued to greatly distract investors, as the flagship
S&P 500 stock index melted up to several new record highs of its
own. Major economic-data releases including monthly US jobs, CPI
inflation, PPI inflation, and retail sales all deviated from Wall
Street expectations in Fed-hawkish directions, lowering expected Fed
rate cuts.
Entering October futures implied traders were expecting the FOMC to
cut another 69 basis points at its two remaining meetings in
2024, on top of its emergency-grade 50bp initial cut in
mid-September. Then another 104bp was expected in 2025. All that
was the equivalent of fully nine quarter-point cuts by the end of
next year, aggressive easing! That outlook was quite-bearish for
the US dollar but bullish for gold.
Fast-forward to midweek, and a big jobs upside surprise,
hotter-than-expected CPI and PPI inflation, and better retail sales
had crunched those expected rate cuts back down to 38bp more in 2024
followed by another 86bp in 2025. That would total seven
quarter-point cuts, slashing two off the table in just
several weeks. The US Dollar Index reflected fewer probable cuts,
soaring 3.5% higher month-to-date as of midweek!
Normally speculators look to the USDX’s fortunes for their primary
cues to trade gold futures, then do the opposite. And specs’
extreme longs and very-low shorts left them big room to sell as the
dollar soared. Yet very unusually that didn’t happen. Instead of
falling an inversely-proportional 3.5% to the USDX’s October rally,
gold somehow blasted 3.2% higher during it! That reflected
and fueled way-more-bullish sentiment.
Naturally gold-stock traders love seeing the metal that drives the
miners’ profits continue achieving new highs. And the big round
numbers generate more trader excitement and financial-media buzz.
We’ve been blessed with lots of those this year. In late March when
gold bested $2,200 for the first time in history, GDX surged 2.1% on
top of the prior day’s +3.8%! A week later when gold hit $2,300,
GDX shot up 3.2%.
Gold’s first-ever close above $2,400 arrived in mid-May, which was
celebrated with a big 3.4% GDX up day. Then $2,500 fell in
mid-August, catapulting GDX up 3.2% that day and 1.9% the next!
$2,600 was broken in late September, and GDX surged 2.0% that day
after +1.7% the day before. So there is certainly plenty of recent
precedent for GDX’s big 4.0% surge last Friday when gold first
exceeded $2,700.
That
particular big gold-stock up day was very important technically,
since it erupted just under GDX’s upleg-to-date peak. That shot GDX
up to $43.15 on close, the highest seen since early August 2020.
That was the visually-striking $41-resistance-zone breakout
GDX needed to generate more gold-stock excitement among traders and
the financial media! Then it got better, as GDX surged 2.0% to
$44.09 this Tuesday.
Gold
stocks have largely been out of favor for a long time, over a decade
now. While there have been plenty of strong uplegs for speculators
to trade for big gains, there hasn’t been enough accumulating
upside progress for investors. Before this week, GDX only
closed above $44 on three trading days in the entire span since late
January 2013! That was a three-day streak in early August 2020 as a
monster gold upleg topped.
Gold
uplegs have to achieve 40%+ gains with no 10%+ corrections to
achieve monster status, and the last one before today’s emerged out
of March 2020’s pandemic-lockdown stock panic. Gold soared exactly
40.0% higher over 4.6 months in that, which the major gold stocks of
GDX amplified 3.4x to a huge 134.1% gain! GDX crested at
$44.48, one day before gold. That makes for a critical technical
juncture.
Just
this Tuesday, GDX closed merely 0.9% under surpassing that last
monster-gold-upleg peak. A close above there would be an
11.8-year secular high for this leading gold-stock benchmark!
Seeing decade-plus breakouts is exceedingly-rare in markets, so
those have big psychological impacts. The gold stocks are within
spitting distance of a massive secular breakout that will drive much
interest and enthusiasm.
I
suspect that’s coming soon. Both gold and gold stocks have pulled
back in recent days, which is totally normal after the metal
rocketed up to extremely-overbought levels and the miners enjoyed an
exceptional up-day streak. Uplegs and bull markets are never
linear, taking two steps forward before one step back. Periodic
selloffs are essential to bleed off excess greed and rebalance
sentiment, extending uplegs’ longevity.
At
best since early October 2023, gold’s current monster upleg has
soared an extraordinary 51.0% higher! Remember that GDX has
historically amplified major gold moves by 2x to 3x, implying major
gold stocks should be up 102% to 153% by now. Yet at its
latest interim high this week, GDX had “only” rallied 70.2% over the
last 12.6 months during gold’s huge upleg. Festering apathy and
bearishness forced this lagging.
But
as gold itself powers up to
more nominal
records, and GDX achieves rare decade-plus highs, sector
bullishness is going to continue growing. Gold stocks’ secular
breakout will fuel more bullish coverage in the financial media,
which will make more traders aware of their upside and deploy
capital to chase their gains. This bullish dynamic becomes
self-feeding, the faster gold stocks rally the more traders rush to
buy.
If
GDX merely recovers to 2x upside leverage to gold’s gains so far,
we’d be looking at $52.33 which would be the best gold-stock levels
since late October 2012! That eternity ago gold was only running
near $1,725, and gold miners’ earnings were radically lower. If GDX
gets to 3x before gold’s upleg gives up its ghost, that would
catapult it to $65.54! Nothing like that has been witnessed since
early September 2011.
That
was one day after GDX’s all-time-record high of $66.63, which
happened soon after gold challenged $1,900 for the first time ever.
Normal gold-stock gains relative to gold have a real shot at
launching GDX to new all-time highs in coming months! That would
really accelerate coverage, awareness, bullishness, and buying.
When traders reawaken to this sleeper sector, the epic gains they
drive can be life-changing.
Case-in-point is gold’s last mighty secular bull, which ran from
April 2001 to August 2011 yielding epic 638.2% gains. The end of
that was when GDX hit that record high. As GDX was born during that
bull, it doesn’t have total gains through it. But the older and
very-similar HUI gold-stock index comprised of most of the same
component stocks skyrocketed 1,664.4% higher during that
bull! Talk about multiplying wealth.
Today’s secular gold bull was born in December 2015 at $1,051.
While it took awhile to get going and moved in fits and starts, gold
has powered 161.4% higher so far as of this week. GDX’s best gains
during this span are only 253.6%, for very-weak 1.6x upside
leverage. That’s way under the 2.6x achieved in gold’s last secular
bull, implying massive catch-up rallying left to do. Gold
stocks’ epic fundamentals support this.
The
gold miners are just starting reporting their best quarterly
earnings ever by far, fueled by awesome record gold prices. I wrote
an entire essay a couple weeks ago analyzing gold stocks’ imminent
epic quarterly
results. In a nutshell,
GDX-top-25
miners’ unit earnings are on track to skyrocket over 100% YoY
to a dazzling new record $1,247 per ounce! And that immense profits
growth is nothing new for this sector.
In
the last four reported quarters ending in Q2’24, the GDX top 25 have
already seen unit earnings soar 94%, 42%, 35%, and 84% YoY! That
has driven gold-stock valuations dramatically lower, to low
double-digit and even single-digit trailing-twelve-month
price-to-earnings ratios. So fundamentals fully justify gold stocks
soaring much higher to reflect their enormous profitability
with these record prevailing gold prices.
It’s
unfortunate investors have mostly abandoned gold stocks, but
understandable after a dozen years of grinding sideways. But this
sector’s big uplegs and corrections provide great opportunities for
active trading. I’ve been recommending specific gold-stock trades
as opportunities arise for a quarter-century now in our subscription
newsletters, totaling 1,531 as of Q3’24 averaging great +16.0%
annualized realized gains!
That’s roughly double the long-term stock-market average, in a
neglected contrarian sector! Gold-stock gains are going to grow
much larger once investors start returning en masse. And that
psychological
tipping point is nearing with gold stocks’ secular breakout
building steam. With gold stocks still lagging gold’s monster
record-shattering upleg, now is the time to do your homework and add
gold-stock allocations.
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The
bottom line is gold stocks just achieved a major secular breakout to
four-plus-year highs. And just a little more rallying will lift GDX
to its best levels in nearly a dozen years. Such long-term
breakouts are very rare in markets, and generate much interest and
bullishness. They greatly expand awareness of the breaking-out
sectors, enticing wider groups of traders to chase those mounting
gains with aggressive buying.
And
way-more gold-stock upside from here is highly-probable and
fully-justified. The major gold stocks have really lagged gold’s
monster upleg over this past year, an anomaly needing to mean revert
to normal upside leverage. And the gold miners will soon report
epic record Q3 earnings, extending their trend of massive
year-over-year growth. Rampant undervaluation remains despite this
sector’s secular breakouts. |