Gold Stocks Breakdown. What’s Next?

In our last editorial, we noted that if the gold stocks (HUI & GDXJ), which were in a precarious position, lost their lines of support, it could lead to another 15% to 20% downside.

This week both the HUI and GDXJ lost support and are trading at fresh 52-week lows.

The HUI has 10% downside to initial support at an open gap (216) and strong support around 205. GDXJ has strong support at $35 and $34, which is also the 62% retracement of the 2016 to 2020 advance.

HUI (top) & GDXJ (bottom)

The chart below includes GDX and breadth indicators for the HUI and GDX at the bottom. 

Significant lows in the sector have occurred with the bullish percentage index (currently at 30%) at 20% and lower. The number of new lows in GDX (smoothed by a 20-day average) is not yet as low as in 2018. 

GDX & Breadth Indicators (% Above HUI 50 & 200-DMA, BPI, GDX New Lows, GDX 20-Day A/D)

The next chart shows GDXJ and our custom breadth indicators, including the new 52-week lows, which we created this week.

I need to double-check that indicator over the weekend, but it shows that GDXJ is more oversold than in 2018 and is just as oversold as it was in late 2015. 

Recent price action and the distance from support levels argue for more downside, but the breadth indicators show the gold stocks (and juniors especially) are already very oversold.

One should respect the additional downside potential while realizing the ingredients for a good rebound could fall into place shortly. 

I’ve started to take a hard look at potential buying opportunities in select individual stocks. Note, not everything bottoms at the same time.

As per my article from a few weeks ago, I’m focused on finding the producers and developers with 7 to 10 bagger potential over the next two to three years. There is less long-term risk as these types of companies can add value irrespective of metals prices. And the recent decline in the sector has priced out much of the risk in some of these stocks. 

In our premium service, we continue to identify and research those companies with considerable upside potential over the next 24 months. To learn the stocks we own and intend to buy, with at least 5x upside potential after this correction, consider learning more about our premium service.