Since late July, I have deemed the gold and silver stocks as a hold and not a buy. The risk of a correction was high, and logic and history argued it would last for at least a few months.
Generally speaking, we advised being in a “do nothing” mode. But that is coming to an end.
The sector has corrected, and the bears are coming out. However, the risk now favors the bulls and even more so after Monday’s selloff.
We have noted the strong confluence of support in VanEck Vectors Gold Miners ETF (NYSE:GDX) around $35-$36. Yesterday, GDX closed below its 200-day moving average and fell to $34.36.
This breach is not a concern for two reasons.
First, the 38% retracement from the COVID crash low is at $34.44, and the 38% retracement from the epic January 2016 low is at $32.90.
Second, the three comparable corrections in gold stocks (2002, 2006, 2009) all went below their 200-day moving average (blue), and two bottomed at the 400-day exponential moving average (red).
Note, GDX has an open gap at $33.55, and its 400-day exponential moving average is at $32.24.
The correction in GDX has now hit the average of those comparable corrections. In terms of time, the corrections’ average ended in five months or around Christmas on the current scale.
VanEck Vectors Junior Gold Miners ETF (NYSE:GDXJ), like GDX, is also very close to a bottom.
GDXJ closed at $49.56. It has a confluence of strong support around $48.
The 200-day moving average is at $48.56, and the 38% retracement from the COVID crash low is $48.23. Furthermore, the 2013 and 2016 daily high (and previous 7-year resistance) was $48.63.
Smaller juniors such as those not found in GDXJ may have a bit more correction to go but are much better buys than they were last quarter.
In any case, this holiday season appears to be the time to be a buyer.