Both the price of gold and shares of gold mining stocks as represented by the popular VanEck Vectors Gold Miners Fund (NYSE:GDX) had a good performance year in 2019. But in the two otherwise quiet trading sessions ahead of Christmas, they got another boost that led to a classic chart breakout. In my eye this is a sign of things to come, i.e., higher prices for GDX in coming weeks and months.
Over the past 20 years as a professional trader and investor I have found that gold mining stocks can be great vehicles for trading, but one needs to be aware that they can trade somewhat erratically at times. Yet when these assets trend, they can really trend.
While I do think that gold and gold miners are in a new bull trend, I am not yet convinced that the breakout of recent days will lead to a non-stop rip-roaring rally. I am for now merely looking at this as a bullish trading opportunity within a broader bullish trend.
Before looking at the charts, allow me to say a few words around the psychological read I have on the recent pre-Christmas rally in the GDX ETF. The strong Fed-infused rally in risk assets, such as equities, since October has also kept a lid on bond prices. While gold and gold miners didn’t appreciate since then, they have remained well-bid.
With implied volatility in the equity market at complacent lows, it is my read that some market speculators are now looking toward January, where a pullback in risk assets is likely. Such a pullback in equities would also coincide with a further bid in gold and gold mining stocks. Hence, the recent bid in those assets may be a smart-money crowd trying to position for a risk-off period in coming weeks.
GDX Stock Charts
On the multi-year chart we see that the GDX ETF, although choppy over the years, has managed to form a series of higher lows in 2019. After pausing for the past few months, this breakout in recent days now looks to bring new tailwinds to this part of the market that could ultimately surpass the 2019 and 2016 highs.
On the daily chart we see that after a strong run-up into the end of summer, GDX began to slip into a consolidation phase. This consolidation phase in my eyes continued longer than initially anticipated by market participants due to the renewed Fed liquidity injection that began in early October. Nevertheless, the ETF held in well through the autumn and never broke below well-defined horizontal support around the mid-$20s.
But then on Dec. 23 the bulls stepped in and took the bears by surprise. Over two days (Dec. 23 and 24) GDX rallied about 6%. As a result, a breakout out of the multi-month range was achieved.
Traders and investors liking this new bullish posturing may consider buying GDX around the high $20s with a next upside target around $31. Any strong bearish reversal of the gains from Dec. 23 and 24 would be a stop loss signal.
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