Gold Stocks Approaching Bottom

Other than during a rally from Thanksgiving until New Year, gold stocks have been under pressure for nearly six months.

The correction itself was not a surprise, but the structure has been different from the corrections during the 2000s. 

Those corrections entailed a quick decline and then a recovery of most of the losses, on the way to at least a few more months of consolidation. In 2009-2010, the corrections were especially brief.

The current correction is nearly six months in, and the gold stocks are fairly oversold and trading just above strong support levels.

GDX has a confluence of support at $32, including the 38% retracement from the 2016 low, the 50% retracement from the Covid low, and the 400-day exponential moving average. 

Breadth indicators signal a market that is oversold but could register an extreme should GDX test $32.

GDX Daily w/ Breadth Indicators

Meanwhile, the prognosis for GDXJ is similar. It has a confluence of support at $47 and $45.

The 8-year support level and 38% retracement from the Covid low are at $47, while the 38% retracement from the 2016 low and 400-day moving average are at $45. Note, the 400-day moving average has been an excellent pivot point over the past decade. 

As with GDX, the breadth indicators are oversold but could become more oversold.

GDXJ Daily w/ Breadth Indicators

The gold stocks could rally from here, but they are missing a few things we like to see around a bottom. 

First, there is no positive divergence in the GDX advance-decline line. Second, GDX and GDXJ have not been outperforming Gold. 

In addition, while the miners have rebounded a bit in recent days, none of the daily candles signal accumulation. 

The miners are oversold and setting up for a rebound, but my guess is they aren’t quite there yet. A $2-$3 decline in GDX and GDXJ would make things easier by bringing them to strong support and likely pushing breadth indicators to oversold extremes.

There is a bit of uncertainty around this bottom but what is much less uncertain is buying high-quality juniors, trading well off their highs, and around excellent entry points.

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