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Saturday, 09/28/2024 9:58:12 PM

Saturday, September 28, 2024 9:58:12 PM

Post# of 5688
Gold Stocks Forge Higher
By: Adam Hamilton | September 27, 2024

The gold miners’ stocks are forging higher, just achieving their best levels in four years. While advancing, their upside progress has certainly been labored. Given gold’s monster upleg and dazzling record highs, gold stocks should be much higher. And their record profits and epic earnings growth sure support way-better stock prices. The main impediment is traders’ apathetic sector sentiment, but that is starting to shift.

The leading GDX gold-stock index has surged 7.2% at best this month, closing at $41.41 Tuesday. That proved major gold stocks’ highest levels in 3.9 years. And if GDX can best the $44.48 it hit a few months earlier in August 2020, we’d be looking at 11.7-year secular highs! Since early October 2023, this GDX upleg has powered up 59.8%. That’s trouncing broader stock markets, with the S&P 500 up 34.5% in that span.

With great performance like that over this past year, you’d think gold stocks would be growing popular. But they really aren’t. Mainstream investors still aren’t the least-bit interested in chasing this sector’s strong upside momentum. They’re still enamored with the AI stock bubble, which continues to steal all the market limelight. And contrarian investors like me who follow gold stocks are pretty disappointed in them.

Gold stocks are ultimately leveraged plays on the metal they mine. The gold-mining business heaps big additional operational, geological, and geopolitical risks on top of gold price trends. So gold stocks really need to outperform gold to justify deploying capital in them. Historically the major-dominated GDX has generally leveraged material gold moves by 2x to 3x. That kind of amplification makes gold stocks worth owning.

Unfortunately they’ve way underperformed long decades of precedent over this past year. GDX’s 59.8% upleg sounds good, but gold itself has enjoyed a monster 46.3% upleg in that timeframe! That means the major gold stocks have only clocked in with 1.3x upside leverage to their metal. At that usual 2x to 3x, this GDX upleg should already be up 93% to 139% given gold’s massive gains! Gold stocks are way behind.

That doesn’t mean they won’t catch up with gold, which can happen fast. Compared to the vast pools of stock-market capital, this contrarian sector is vanishingly-small. So even tiny shifts in capital flows can catapult gold stocks far higher in short order. During gold’s last 40%+ upleg cresting in August 2020, that last time GDX was higher, GDX had rocketed up 134.1% in only 4.8 months! Gold stocks aren’t out of the race.

After actively trading this high-potential contrarian sector publicly for a quarter-century now, I’ve seen plenty of times where gold stocks were mostly ignored. Sooner or later investors always return, resulting in huge gains. Doublings in under a year aren’t uncommon, gold stocks can really multiply wealth when they are running! Another doubling or more is coming as gold stocks mean revert way higher to reflect gold.

That will be driven by a major bullish sentiment shift, resulting from gold’s massive gains and impressive parade of nominal record highs. The gold miners’ colossal earnings generated at these high gold prices fundamentally justify way-higher stock prices. Before we delve into all that, this chart puts GDX technical action in recent years into perspective. The gold stocks’ latest secular high is marginal, they are forging ahead.



Interestingly despite vexingly lagging gold this past year, gold-stock doublings are still a thing. Since this secular gold bull was born in late September 2022, GDX has powered up 89.3%. That compares to gold’s +64.0% at best in that span, making for modestly-better 1.4x upside leverage. Yet driven by gold-stock sentiment, sector performance can turn on a dime. GDX would only need a couple months to fully catch up.

The dominant driver of gold-stock psychology is how gold is faring. And that is awesome right now, achieving five new record closes in August followed by another seven so far in September! Closing way up near $2,662 Tuesday, such fantastic gold levels were almost unimaginable just one year ago. The longer and higher gold rallies, the more investors and speculators will want to chase it including with gold stocks.

New record highs in particular fuel virtuous circles of buying. The higher gold goes, the more the financial media covers it and the more bullish their coverage gets. That elevates gold and by extension its miners’ stocks onto more investors’ radars, including fund managers. The more buying they do, the more gold and gold-stock gains mount. That generates more bullish commentary attracting in widening circles of investors...

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