Gold Miners ETF (GDX)

[DiscoverGold]

Gold-Stock Tipping Point
By: Adam Hamilton | August 2, 2024

The gold miners’ stocks look to be nearing a crucial psychological tipping point. After years of mostly being ignored, this small contrarian sector seems on the verge of roaring back into favor. When gold stocks grow popular and traders increasingly chase them, their gains grow massive. More than doubling in individual uplegs isn’t unusual, and total bull-market returns can easily exceed an order of magnitude.

For a quarter-century now, I’ve been studying, trading, and writing newsletters primarily about gold and its miners’ stocks. Since 2000 I’ve penned 1,132 of these weekly web essays, 1,107 weekly subscription newsletters, and another 289 monthly subscription newsletters! The latter two have recommended and closed fully 1,510 individual mostly-gold-stock trades, which have all averaged 15.6% annualized realized gains.

That’s a great record spread across 25 years, roughly twice the long-term stock-market average! The key to that is staying informed, always following gold stocks no matter how they are faring. That’s the only way to consistently buy lower then later sell higher. Sadly the vast majority of traders miss most opportunities because they only pay attention when sectors are hot, after big gains have already been won.

That natural human tendency has been the most-frustrating part of the newsletter business for me. The most-important times for traders to be interested in gold stocks are when they are beaten-down and deeply out of favor. Those are the best buy-relatively-low opportunities, the easiest times to multiply wealth. Yet around those pivotal lows, interest and sales wither as bearishness reigns and traders capitulate.

Gold stocks’ last couple major lows weren’t long ago, early October 2023 and late February 2024. Then the leading GDX gold-stock ETF and benchmark plunged to just $25.91 and $25.79. I pounded the table on the incredible opportunities in this sector around both lows, and we filled our newsletter trading books with cheap fundamentally-superior mid-tier and junior miners. Only diligent traders paying attention participated.

That latest week languishing gold stocks bottomed, I wrote a whole essay explaining why that was such a fantastic buying opportunity in late February. Traders need to stay informed and engaged when sectors are unloved and deeply oversold after just selling off substantially. That’s why I’ve subscribed to excellent financial newsletters covering various sectors since high school, and later went into this business myself.

Staying abreast of markets professionally requires great expertise painstakingly forged over decades of full-time work. Few analysts attain this to greater degrees than seasoned newsletter writers. Rather than putting in all that work myself for other sectors, I can reap their experts’ awesome wisdom in little time for trivial subscription fees. But newsletters are only valuable if you consistently digest them through all cycles.

On the last day of February my essay concluded “Excessive selling has slammed GDX way back down to early-October levels when today’s gold upleg was born. Yet that makes zero sense fundamentally with gold remaining about 12% higher. These seriously-oversold gold stocks riddled with capitulatory bearishness is an anomaly that will prove short-lived. They are due to soon mean revert sharply higher with gold.”

Naturally that proved correct, as you’d expect after a quarter-century of studying a sector. Over the next 4.6 months into mid-July, GDX blasted 52.3% higher. Our newsletter trades added around those lows have fared even better, with unrealized gains running as high as 97.2% then! There’s no magic in that, just time on task. The more years anyone devotes to studying anything, the more their knowledge on it grows.

Our innately-human herd psychology works alike across all markets, from mega-cap tech stocks to crypto to physical commodities to gold stocks. When prices are low after major selloffs, bearishness and apathy lead traders to abandon sectors. Right when they should be diligently engaged looking for opportunities to buy in relatively-low, they flee. That’s why most speculators and investors ultimately fail in the markets.

Then later when those same perpetually-cyclical sectors inevitably rebound soaring to lofty heights, traders flock back. They get caught up in the popular greed and euphoria stoked by increasing and more-bullish financial-media coverage. As their interest soars they flood into sector newsletters, then end up buying in relatively-high after the lion’s share of gains have already been won. Way late, they usually ride down selloffs.

Sector psychology follows prevailing price levels, slowly swinging like a giant pendulum between greed and fear. The reason I’m writing today’s essay is gold-stock sentiment sure seems to be nearing the halfway point at the bottom of that arc! This sector is no longer mired in fear like in late February when traders should’ve been aggressively buying. But despite their surge, gold stocks aren’t yet drenched in greed.

This chart reveals GDX’s mounting bull market over the past couple years. Gold stocks have achieved higher lows and higher highs on balance, carving an indisputable secular uptrend. From this sector’s last major bear-market low in late September 2022 to mid-July 2024, GDX has powered 79.6% higher. Yet this young bull remains super-small by sector standards, with much-larger gains coming as traders return.



Gold stocks are ultimately leveraged plays on the metal they mine, which overwhelmingly drives their profits and hence stock prices. GDX’s bull is mirroring gold’s underlying one over this same span, where the yellow metal climbed 51.9% at best. The major gold stocks have actually only amplified gold by 1.5x in this bull, still way under their usual 2x-to-3x range! Sector psychology has remained stubbornly bearish.

That resulted from a pair of crazy anomalies. First gold and especially gold stocks collapsed in mid-2022, as the Fed’s most-extreme hiking cycle in its history launched the US dollar stratospheric. That fueled excessive gold-stock bearishness taking longer than normal to work off. Second the US stock markets have been soaring in their latest AI bubble led by mega-cap tech, distracting traders from all other sectors.

But all that is changing, with gold enjoying a remarkable breakout to many new nominal records this year! Incidentally on that experience front, I predicted that in my early-January essay “Gold’s 2024 Breakout Upleg”. With gold still at $2,043, I concluded “gold’s breakout upleg into nominal record territory is set to accelerate in 2024. New records generate bullish financial-media coverage putting gold back on investors’ radars.”

Even American stock investors who have ignored gold’s entire upleg are starting to take notice as the AI stock bubble looks to be bursting. The combined gold-bullion holdings of the mighty American GLD and IAU gold ETFs grew 1.7% or 20.2 metric tons in July, their biggest monthly build since March 2022! Capital inflows into gold have grown as the flagship S&P 500 stock index pulled back 4.7% in seven trading days...

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