Gold & Gold Stocks Reach Multi-Year Resistance

The precious metals sector has reached an interesting juncture. After a rip-roaring recovery, Gold and the largest and most important gold mining stocks ETF, GDX have hit multi-year resistance. 

Gold was able to surpass its pre-Corona peak at $1700 and trade as high as $1789 before selling off. From 2011 to 2012, Gold peaked three different times at $1800 before plunging to $1200. 

GDX is in a far more interesting position. It was able to recoup 100% of the Corona crash, but it is right back at multi-year resistance. 

We plot the daily bar charts below.

GDX (top) has retreated from 7-year resistance while Gold (bottom) has retreated from 8-year resistance. 

GDX (top), Gold (bottom)

Let’s focus on GDX because the next breakout there should be more significant for the entire sector. 

The rebound in gold stocks has been historic, but there are a few precedents (2001, 2008, 2016). As far as the price action before and during the rebound, 2008 is the best comparison.

We plot a daily candle chart of GDX, which highlights its trading during the financial crisis. Pay special attention to the price action following confirmation of the low in late November 2008. 

The rally that followed the November 2008 low found initial resistance at the 50-day moving average. 

GDX, of course, surged higher. Note that its next correction bottomed at a rising 50-day moving average.

GDX 2008-2009

At present, GDX has already corrected at the 50-day moving average and surged past it. The comparison to 2008 suggests the next move could be a retest of the 50-day moving average (as support).

There is gap support at $26.70 to $27.00, while the 50-day moving average is at $26.85 and rising.  

GDX now

The December 2008 correction in GDX lasted about a month until GDX rebounded from the 50-day moving average. 

Today, GDX faces very stiff overhead resistance at $31-$32, and a correction could last a few months.

However, the sharp rebound in GDX, as well as the senior miners (Newmont, Barrick) showing incredible strength, are positive signs for the sector. It signals big-money accumulation. 

GDX is in position for a historic breakout, and whether it requires a few weeks or a few months of backing and filling is not important in the long run.  

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