An update of the progress of GDX for gold stock traders (as opposed to investors) to consider.
If you took gold stocks for a trade consider that GDX is now well into the higher high we wanted to see above the January high and is on the verge of filling the next gap. On this leg it filled the lower gap and now approaches the middle one, our next objective. Sure, it can fill the upper gap at 40.14, but it could also wait until later after a pullback/correction. Either way, it is important for longer holders that the higher high has been struck. That keeps the trend intact.
If you are a trader, you might consider taking some profit. One scenario that I could envision is that whether GDX stops sooner (at current resistance and gap) or later, after a hysterical rise to fill the upper gap, a weakening of the broad macro could pressure the miners into a correction. There is after all that gap down at 28 and if the world ends and crashes, another down at 22.72. Importantly, the gap at 28 could fill and still keep alive the ‘higher highs, higher lows’ uptrend.
I am not trying to scare investors* out of positions. But my job is to illustrate what I see. What I see is an ETF doing what we wanted it to do and becoming overbought. I may consider hedging at some point soon. I would like to try to resist profit taking on preferred holdings. Right now gold stocks are rising along with several inflation trades (e.g. commodity/resources related). Though gold miners have started to lead even the copper mining sector, they are not quite yet unique.
It’s been a solid rally. A pullback will come at some point and this chart advises it could be at the upper gap or more immediate resistance in the 36s.
* I use the word “investors” purposely, even as a majority KNOWS that you never ‘invest’ in gold stocks. That is due to the potential that the macro is changing for real in their fundamental favor.
Gary, what’s your view, or any new news about, Franco-Nevada Corporation (FNV)? I got spooked a while back by LatAm mine issues and sold for a small gain. I miss the dividend, and of course FNV is much higher now. Your thoughts?
Hi Paul, I have not really thought about it much since I sold it and am not up on the company fundamentally. But what I will say is that IMO the royalty plays could greatly under-perform the miners (the exact opposite of what has been the case for years) if the macro changes in favor of gold mining. Two reasons: 1) actual miners would theoretically leverage a counter-cyclical macro even if gold does not go up much and 2) relative high valuations of royalties have been assigned based on those years of history.