Interview: Gold & Gold Stocks Tracking 2009 Analog

Jordan Roy-Byrne joins me to share some of his recent research on how the corrections during the last bull market in gold, over a decade ago, compare to the price action in gold over the past 4 days. We do the same for gold stocks broadly early on in the bull market.

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Lagging Gold Miners Signal Interim Top

A few weeks ago, we wrote that a correction was imminent. 

Wrong choice of words.

However, we were just too early.

As we write this article, GDX and GDXJ have corrected 8% and 10%, respectively. More downside is needed to confirm a correction is underway, but I think that will happen soon enough.

There are a plethora of reasons the miners are going to correct.

First, the miners have underperformed the metals severely in recent days.

Over the past 9 trading days, Gold and Silver gained 7% and 16% respectively, but the miners are up only 1% to 3%. GDX has gained 0.9%, GDXJ 1.8%, and SILJ 2.9%. When the stocks underperform the metals after weeks and weeks of substantial gains, they signal a coming shift.

Second, the miners hit very strong resistance levels and have formed back to back bearish candles on the weekly candle charts.

GDX hit $45, which was the measured upside target from the 2016-2019 consolidation and 2018 low. Also, note nearly $44 is the 62% retracement of the bear market.

GDXJ peaked around the 38% retracement of its bear market, which also happens to be resistance from the 2010 and 2012 lows.

GDX & GDXJ Weekly

Finally, breadth indicators have been at extremes for more than a few days. There are quite a few to list.

A few days ago, the entire HUI and GDXJ (yes 100% of the stocks) were trading above their 50-day and 200-day moving averages.

The bullish percentage index, a breadth indicator has ranged between 96% to 100% in recent weeks.

Finally, new highs in both GDX and GDXJ (smoothed by a 20-day moving average) hit the same levels as they did at the 2019 and 2016 peaks.

So with that said, what do we do with this information?

In recent editorials, I wrote that in bull markets, we buy and hold. Now is not the time to buy, but it could be soon enough.

Considering the 2009 recovery analog (which miners may or may not be following), miners could correct at least 20%.

Furthermore, in taking a look at the above chart of GDX and GDXJ, we can see potential strong support levels of $37 GDX and $50 GDXJ.

The metals will also correct, but what excites me is the potential floor in the metals (the coming lows) could be levels that were deemed high just a month or two ago.

In the meantime, stay patient and let the market and various individual stocks find their equilibrium at lower levels.

We continue to focus on identifying and accumulating those stocks with significant upside potential over the next 12 to 24 months. To learn the stocks we own and intend to buy that have 3x to 5x potential, consider learning more about our premium service. 

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Interview: Miners Underperforming Metals Now

Jordan Roy-Byrne joins me for a look into the recent out-performance of gold and silver over the stocks. Even today we are seeing the stocks fade as the metals make a new leg higher. It’s important right now to focus on the near term drivers for your individual stocks.

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Macro-Market & Precious Metals Outlook Report

This report is a condensed update of our book that was published in 2019. The report focuses on the long-term macro-market outlook, Gold & Silver outlook and the outlook for gold and silver stocks. We highlight the 10 to 20 year, secular outlook as well as the outlook over the next 3-5 years (this cycle) which is relevant to our portfolios. 

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Gold & Silver Correction Imminent

What we wrote in May applies again.

In a bull market, you buy and hold. Now is not the time to buy. A correction in precious metals is imminent and could be underway as you read this.

The signals are overwhelming.

Gold and silver miners started the week by gapping up on Monday and Tuesday. They gapped up again on Wednesday, but that gap filled immediately.

A series of gaps typically occur after the start of a move or right before its end.

On Wednesday, the silver stocks underperformed a huge move higher in Silver. That was a warning sign.

On Thursday, Gold climbed another $25/oz, but both Silver and the gold stocks made a higher high before closing lower. That divergence is another warning sign.

On Tuesday, we alerted subscribers to the potential for an interim top because of the gaps coupled with extreme breadth readings.

The percentage of HUI stocks that had closed above the 20-day, 50-day, and 200-day moving averages was 100%, 94%, and 94%.

Meanwhile, the percentage of GDXJ stocks that had closed above the 20-day, 50-day and, 200-day moving averages was 100%, 96% and 96%.

The bullish percentage index, another breadth indicator has touched 100% in recent days.

When a market is this overbought, there is virtually no room for immediate improvement or upside.

We should anticipate lower prices over the days ahead.

Below we plot the daily bar charts of GDX and GDXJ with the 100-day moving average.

GDX has support anywhere from $35 to $37.

This pullback in GDXJ could be the “retest” of its breakout through 7-year resistance. Keep an eye on $50-$51.

GDX (top), GDXJ (bottom) Daily Bar Charts

It has been four months since the gold stocks bottomed in March.

Four months after the October 2008 bottom, GDX endured 43 days of correction, which included a 23% decline and a 21% decline after a rally. Both declines bottomed around the 100-day moving average.

The low in price occurred in 15 days, but GDX didn’t resume its rip-roaring uptrend for another month. From there, GDX exploded another 80% over the next seven months!

To sum things up, this is not the time to buy.

A correction is likely, and it probably will last more than a few weeks.

However, recognize it as an opportunity.

Eventually, GDX and GDXJ will resume higher towards the measured upside targets of $50 and $83.

Gold will correct too, but what happens to this sector when Gold breaks $1900?

We continue to focus on identifying and accumulating those stocks with significant upside potential over the next 12 to 24 months. To learn the stocks we own and intend to buy that have 3x to 5x potential, consider learning more about our premium service.

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