Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Stocks to Retest Lows

Commodities / Gold & Silver Stocks Oct 21, 2011 - 02:21 AM GMT

By: Jordan_Roy_Byrne

Commodities

Best Financial Markets Analysis ArticleGold shares rebounded in line with other assets but the initial rebound has been met with more selling over the past few days. A retest of the recent lows is now inevitable. Just a few weeks ago, GDX staged an impressive intraday reversal. It gapped lower at the open and was down 7% at its lows before erasing most of its losses. GDX ultimately rallied from $51 to $58.


As it stands now, the next few days will be critical for the mining stock complex. Wednesday, GDX closed below support at $55 which hasn't been penetrated on a weekly basis since June. The market has found reliable support this year at $52 which also marks the 600-day moving average, a level which has supported GDX at every key bottom except in 2008.

There are other things to consider beyond basic technical analysis. This chart from sentimentrader.com shows the HUI along with some breadth indicators which are looking very healthy relative to 2008. In mid 2008, the McClellan Summation index had already broken to a multi-year low. Presently, the index is yet to break to any major new low. Also, the cumulative advance decline line remains in an uptrend and close to a new all time high.

Gold Bugs Index

Typically, breadth indicators will breakdown first and signal trouble. That is what happened in 2008. We aren't seeing that yet. Furthermore, we should note that the bullish percent index (the percentage of stocks on P&F chart buy signals) for GDX is only 23%. The recent low of 16% was the lowest figure since, you guessed it late 2008. Needless to say, the gold stocks are quite oversold.

In addition to being oversold, many analysts believe the gold stocks are undervalued. Among others, Frank Holmes via TD Securities finds that in particular, the explorers and developers are significantly undervalued. It is hard to argue with the following chart.

Exploration and Development Gold Companies Trading Near 2008 Levels

More important than being undervalued, gold stocks are under-owned. After all, if they were over-owned then who would be left to buy? A recent Money Show article mentions that the TIS group, a research-oriented institution finds that gold stocks are quite under-owned. Quoting from the article:

The total value of all gold mining shares in the world is about $240 billion, but less than 1% of all global pension fund assets hold gold or gold stocks. If market conditions persuade them to double their weighting in gold shares, it would cause $300 billion in new buying that would leave shares in shortage.

You may be surprised to learn that most pension funds and individuals have not been investing in gold mining stocks or the metal itself, even though gold has been the trade of the millennium.

These are times when discipline has to trump emotion. The emotional investor is worried about the current environment and a pending retest of the lows. Will they hold? Is this 2008 all over again? All we can do is consider the evidence and position ourselves accordingly while mitigating all risks. This is a bull market, so over time the market will trade much higher. That does not mean we can't fall another 20% before a bottom. One should have a plan and cash if that is the situation. Also, one shouldn't have too much cash if the market rockets higher after a retest

If you’d be interested in professional guidance then we invite you to learn more about our service.

Good Luck!

Jordan Roy-Byrne, CMT
Trendsman@Trendsman.com
Subscription Service

Trendsman” is an affiliate member of the Market Technicians Association (MTA) and is enrolled in their CMT Program, which certifies professionals in the field of technical analysis. He will be taking the final exam in Spring 07. Trendsman focuses on technical analysis but analyzes fundamentals and investor psychology in tandem with the charts. He credits his success to an immense love of the markets and an insatiable thirst for knowledge and profits.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in