Gold Stocks Have Been Quietly Bottoming
Based on thetrading levels and decreasing volume in the GDX over the past 18 months, theprecious metal miner sector has been drifting listlessly sideways and totally devoid of excitement.Gold stock volatility levels are dropping down to unsustainably low values andperiods of low volatility lead to sharp moves. The major miner ETF opened thisweek in the $22 region, which is the same level it was trading when gold wasnearly $150 lower in late November of 2016. We have yet to see one of the huge impulsemove up-legs which gold stocks are famous for since the first half of 2016, somost traders have given up and shifted speculative capital elswhere.
However, sincethe initial panic move down in global equities ended on February 9th,the GDX has been carving out a rounded bottom on the weekly chart. While the day to day trading in thegold space continues to be frustrating, the downside selling pressure has been decreasingand weakness is being bought in the miners. We have seen safe haven capital coming into thegold space while global geo-political tensions and monetary concerns havespooked investors.
Rather thana spike low, which would imply a lot of heavy selling pressure, the action inthe GDX of late shows a potential bottom materializing out of boredom andneglect. Sometimes, in a market that is quietly drifting lower with littlevolume, money just leaves and seeks out other areas with the perception ofhigher returns. When enough money has exited the sector, there is not enoughselling power left to drive down prices much further and the market creates anexhaustion bottom.
If we indeedhave a bottom in place, once the GDX closes above the $25 level, it wouldconfirm a breakout and potentially bring a massive amount of capital into thesector. The $25 region in the global miner ETF could be synonymous with majorresistance at the $1365 level being closed above and held on a weekly basis ingold. This week, the critical resistance at $1365 was tested for the third timethis year and would constitute a major breakout if/when it closes above thislevel. Any move above $1365 would likely target at least $1450 in Gold and the$31 region in the GDX.
The goldminer sector is so small relative to broader stock markets that even minorshifts in capital flows can drive enormous gains in a relatively short amountof time. A long-term consolidation in the tight range of $21 to $25 in the GDXhas now entered its 16th month, making the miner sector a coiledspring and ready to explode higher once the market is convinced the $1365 levelin gold will become the new floor, as opposed to critical resistance. Thecontinued failure at this level in bullion has been instrumental in keeping mostspeculators out of gold stocks, making them the last deep value play left in a world where most everythingelse has become over-valued.
The longerthis basing pattern in the miners continues, the greater the potential up-leg whenmore investors return to this forgotten sector. Since it is my contention thatthe miners are bottoming, time could very well be limited for investors to getinto the individual gold stocks with superior fundamentals before they begin animpulse move higher. If you require assistance in choosing the best qualityjunior resource stocks to invest, please stop by my website and check out thesubscription service at http://juniorminerjunky.com/
By David ErfleContributing tokitco.com
Follow @KitcoNewsNOW
newsfeedback@kitco.comwww.juniorminerjunky.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.