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Gold Stocks Soaring Again
By: Adam Hamilton | April 7, 2023

The gold miners’ stocks are soaring again, just blasting to new upleg highs this week! They are following their metal higher and amplifying its gains like usual. Yet despite their dramatic surges in recent weeks, both gold and gold stocks have lots of room to keep running. Sentiment is improving on this accelerating upside momentum, attracting in more capital. And normal gold-upleg-fueling buying is far from tapped out.

Gold stocks are ultimately leveraged plays on gold, because their earnings multiply material gold moves. A miner producing the yellow metal for $1,225 per ounce earns $375 per ounce at $1,600 gold. But as gold rallies 25% to $2,000, those all-in sustaining costs generally don’t change much. So mining profits just explode to $775, more than doubling at a 107% gain! That fuels gold stocks’ big upside leverage to gold.

These numbers aren’t hypothetical either. Gold carved a major secular bottom way down at $1,623 in late September 2022. That birthed a strong new upleg, which has soared as high as $2,020 on close as of the middle of this holiday-shortened week. And the famed GDXJ gold-stock ETF’s top 25 mid-tier gold miners excluding three extreme outliers averaged $1,223 AISCs in Q4’22. Thus miners’ earnings are soaring!

And so are their stock prices. The leading sector benchmark is GDXJ’s big-brother GDX VanEck Gold Miners ETF, which tracks larger major gold miners. It was slammed with gold last summer to deep 2.5-year lows in late September paralleling gold’s. Those left-for-dead gold-stock prices were literally stock-panic levels, not seen since the dark heart of March 2020’s brutal pandemic-lockdown stock panic.

The trading day before GDX bottomed in late September 2022, I published an essay explaining why that was a false gold-stock panic. Gold had been crushed by an extreme US dollar parabolic moonshot to extreme multi-decade highs on the Fed’s most-extreme tightening cycle ever. That’s a lot of extremes, and none are ever sustainable! That was an incredible contrarian buying opportunity, as I argued then.

Indeed both gold and its miners’ stocks have soared since, as the factors driving mid-2022’s extremely-anomalous gold plunge unwound. After four monster 75-basis-point rate hikes in a row, the Fed’s ability to shock the dollar and gold was ending. An early November essay analyzed that in depth, concluding “The battered gold stocks will soar with gold, winning fortunes for contrarian traders.” And that’s what happened.

Between late September 2022 to early February 2023, gold blasted 20.2% higher to $1,951 reentering formal bull-market territory after last year’s anomalous drubbing. GDX rocketed 52.1% higher in that 4.0-month span, amplifying gold’s young upleg by 2.6x. Normally the major gold stocks dominating GDX leverage material gold moves by 2x to 3x. So everything was looking good, with gold-stock prices soaring.

Price action fuels herd sentiment, and that was really starting to improve with higher gold and gold-stock levels. But then gold suffered a sharp pullback catalyzed by a European Central Bank dovish surprise, and a record-seasonal-adjustment-driven eight-standard-deviation headline beat in monthly US jobs! So in February gold plunged 7.2% in several weeks, ultimately hammering GDX 19.8% lower for 2.8x leverage.

Like many of gold’s larger short-term swings, all that was driven by leveraged gold-futures trading. In February, those speculators expended much of their capital firepower available for selling. That left gold ready to mean revert swiftly higher, which accelerating dramatically during March’s banking crisis. Thus as of mid-week, gold has V-bounced 11.5% higher to that $2,020 close. GDX naturally amplified that surge.

This leading gold-stock sector benchmark blasted 28.1% higher in a similar span to $34.17 this week, a new upleg high! That made for healthy 2.4x upside leverage. Since gold remained far from falling into bear territory in late February, technically all this is one upleg between late September to early April. Gold’s total gains have grown to 24.5%, while GDX’s extended to 56.2% in that span amplifying gold by 2.3x.

These 25% and 56% surges in just 6.2 months should be celebrated, trouncing the flagship S&P 500’s mere 12% gain. But neither are large yet by major gold and gold-stock upleg standards. In 2020 for example, two mighty gold uplegs soared 42.7% and 40.0% higher fueling massive parallel GDX gains of 76.7% and 134.1%! Sector uplegs grow huge when upside momentum and bullish sentiment become self-feeding.

Today’s young gold and gold-stock uplegs have lots of potential to grow much larger before they give up their ghosts. As this chart shows, GDX remains relatively low by recent years’ standards, still rebounding out of last year’s extreme-Fed-rate-hike-driven anomaly. Just to recover to mid-April-2022 levels near $41 before all that, GDX would have to rally another 19.6% catapulting its total upleg to hefty 86.9% gains!



Despite their powerful surge since late September’s extreme lows, the major gold stocks per GDX have only just returned to normal levels over the past couple years. They aren’t particularly overbought, they generally remain quite undervalued relative to their underlying earnings, and sector sentiment is still far from euphoric. So there are no technical or sentimental signs that this mounting upleg has largely run its course.

Gold stocks’ fortunes depend on gold’s, so their stock prices will dutifully leverage whatever their metal does next. And gold’s upleg still looking young is the most-bullish argument for this gold-stock upleg ultimately powering much higher. In the last couple months I’ve written five separate essays analyzing gold’s performance and drivers from various key angles. Gold stocks can only be understood through gold...

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