Major Breakouts Coming in Gold Stocks
In recent months and years, we have been writing about potential future breakouts in Gold and Silver. That potential became a reality earlier this year.
Gold exploded out of its 13-year cup and handle pattern through $2100/oz, and soon after, Silver broke out of a three to four-year range past $26/oz.
It has been years since we could write about potential breakouts in gold stocks.
Now is the time.
Technicals, fundamentals, and sentiment are in bullish alignment.
Let me start with the fundamentals.
As the economy slows toward recession, it eliminates recent cost pressures for miners.
Gold is on the cusp of a massive 45-year breakout in inflation-adjusted terms. This is important because the inflation-adjusted Gold price is the best long-term fundamental indicator for gold stocks.
The Gold vs. Oil ratio, a shorter-term fundamental indicator, has broken out to a 3-year high and has more upside.
These charts indicate that further nominal increases in the Gold price over the next few quarters will substantially increase margins.
The gold stocks are sensing this as, technically, they (GDX and GDXJ) are very close to significant breakouts.
A weekly close of $41 in GDX would mark the highest weekly close since the end of 2012.
A weekly close above $48 in GDXJ would be the second-highest in three years. GDXJ has spent very little time above $48 since 2013.
Smaller junior miners are just a little behind GDX and GDXJ.
The chart below shows the little-known and unfollowed TSX Venture Gold Sub Index. It is similar to the TSX Venture Index (CDNX), but it only includes gold companies.
The index has 28 companies, a median market capitalization of $200 Million, and an average market capitalization of $350 Million.
A breakout is not imminent, but if precious metals continue to move higher, this junior index should eventually break out from its more than a decade-long base.
The beautiful thing is that gold stocks are trending bullish and building momentum, yet everyone still hates them.
Here is a screenshot of a recent Twitter thread with nearly 200,000 views and 270 responses.
As one can imagine, very few of the responses were favorable to the miners.
Negative sentiment in the face of positive technicals and improving fundamentals is a very powerful recipe. This is especially true when a market has a chance to break away from multi-year resistance.
Gold looks to continue to trend higher to its cup and handle measured upside target of $3000/oz. Meanwhile, miners and juniors are in a prime position to leverage this move.
There is still plenty of value and upside potential in high-quality juniors. Now is the time to act because it might be too late in the fall.
