While the S&P-500 (SPY) and the Nasdaq Composite (QQQ) have been getting all the attention this year as they march to new record highs each week, the Gold Miners Index (GDX) has outperformed them both but has received minimal attention. This is excellent news for the gold bulls, as we’ve got a hated sector that’s flipped to bullish on its quarterly chart, yet most investors are busy chasing tech stocks at bubble-like valuations. As long as the Gold Miners Index can put up a close above $26.00 to finish 2020, the quarterly chart will flip to bullish for the first time in over a decade. I continue to view gold miners as one of the most attractive asset classes heading into 2020 and plan to add exposure on any sharp dips.
(Source: TC2000.com)
If we take a look from a trend-following perspective, we can see that the Gold Miners Index hopped above its quarter moving average (white line) in March, but this signal has now been confirmed by the second quarterly jump in a row in this moving average. While the Gold Miners Index hopped above this level in 2016, the moving average did not assume a positive slope for two consecutive quarters, which suggested that this had a higher probability of being a false signal. This time around, we’re seeing the opposite, with the sustained buying pressure since March allowing the moving average to move into a new uptrend. The quarterly moving average should move up to $24.00 by the end of Q1 2020, and will likely provide a solid floor on any corrections going forward.
This is a big deal for the bulls. This is because it’s the first bullish quarterly signal in a decade, with the last signal coming in December of 2009. From there, the index gained 60% over the next 18 months. If we were to see a similar scenario here, we could expect the Gold Miners Index to tag the $45.00 level by mid-2021. Obviously, there is no guarantee that these signals play out similarly, but the fact that the quarterly chart is now in sync with the weekly and monthly charts on bullish signals is undoubtedly a boon for the index.
(Source: TC2000.com)
If we take a look from a trend-following perspective, we can see that the Gold Miners Index hopped above its quarter moving average (white line) in March, but this signal has now been confirmed by the second quarterly jump in a row in this moving average. While the Gold Miners Index hopped above this level in 2016, the moving average did not assume a positive slope for two consecutive quarters, which suggested that this had a higher probability of being a false signal. This time around, we’re seeing the opposite, with the sustained buying pressure since March allowing the moving average to move into a new uptrend. The quarterly moving average should move up to $24.00 by the end of Q1 2020, and will likely provide a firm floor on any corrections going forward.
This is a big deal for the bulls. This is because it’s the first bullish quarterly signal in a decade, with the last signal coming in December of 2009. From there, the index gained 60% over the next 18 months. If we were to see a similar scenario here, we could expect the Gold Miners Index to tag the $45.00 level by mid-2021. Obviously, there is no guarantee that these signals play out similarly, but the fact that the quarterly chart is now in sync with the weekly and monthly charts on bullish signals is undoubtedly a boon for the index.
(Source: TC2000.com)
It’s rare that an index outperforms the majority of its peers and receives little to no attention, but this is precisely the setup we have with the Gold Miners Index for 2019. I continue to see the sector as one of the best ideas for 2020, assuming exposure is being added only on dips, and I plan to add to positions if we see a 10% or larger correction in the Gold Miners Index. As long as the bulls continue to defend the $25.70, all corrections can be treated as noise and buying opportunities.
(Disclosure: The author is long gold from $1,455/oz, and GLD from $136.80)
The VanEck Vectors Gold Miners ETF (GDX) was trading at $29.43 per share on Tuesday afternoon, down $0.06 (-0.20%). Year-to-date, GDX has gained 26.64%, versus a 20.66% rise in the benchmark S&P 500 index during the same period.
GDX currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #8 of 33 ETFs in the Precious Metals ETFs category.
About the Author: Taylor Dart
Taylor Dart has over 10 years of experience in active & passive investing specializing in mid-cap growth stocks, as well as the precious metals sector. He has been writing on Seeking Alpha for four years, and managing his own portfolios since 2008. His main focus is on growth stocks outperforming the market and their peers. In addition to looking at the fundamentals, he uses different timing models for industry groups, and scans upwards of 2000 stocks daily to identify the best fundamental opportunities with the timeliest technical setups. Taylor is a huge proponent of Trend Following and the “Turtles” who enjoyed compound annual growth rates of over 50 percent per year.