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Gold Miners Bottom: 3 Ways To Add Value To Precious Metals Portfolios

By Jordan Roy-Byrne, CMTStock MarketsApr 11, 2021 12:32AM ET
www.investing.com/analysis/gold-miners-bottom-3-ways-to-add-value-to-precious-metals-portfolios-200572335
Gold Miners Bottom: 3 Ways To Add Value To Precious Metals Portfolios
By Jordan Roy-Byrne, CMT   |  Apr 11, 2021 12:32AM ET
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The action in recent days has confirmed a short-term bottom in Gold and gold stocks. 

After becoming very oversold, Gold, VanEck Vectors Gold Miners ETF (NYSE:GDX), and VanEck Vectors Junior Gold Miners ETF (NYSE:GDXJ) have traced out double bottoms around areas of strong support.

The chart below shows that GDX held 8-year support, which is a successful retest of the breakout in 2020.

GDXJ fell below its 8-year support but is now back above it after holding its 400-day moving average, which has been significant support or resistance over the past decade.  

GDX:GDXJ:HUI Daily Chart
GDX:GDXJ:HUI Daily Chart

We have rebound targets of GDX $36-$37, GDXJ $51-$52, and Gold $1825.

There is stiff resistance at the upper end of those targets.

Gold bulls are getting excited as this recovery takes shape but let me be a party pooper.

It’s not going anywhere until the sector outperforms the stock market, and the S&P 500 just made another new all-time high. 

Recall 2017-2018. 

Gold held up well but failed to break out multiple times as it underperformed the stock market.

GDX traded sideways (well below its highs) as it underperformed the stock market. The gold stocks underperformed Gold badly in 2017-2018. 

GDX:GDX vs SPX:Gold vs SPX Daily Chart
GDX:GDX vs SPX:Gold vs SPX Daily Chart

Every big move in this sector has occurred in tandem with it outperforming the stock market.

For this rebound to have legs beyond our targets, it needs to outperform the stock market. Otherwise, it will rally and then grind around until fundamentals turn bullish again.

In the meantime, the best strategy is to buy companies that can add value in a flat or range-bound market.

There are three ways a junior company can add value, and they all center around growth.

First, a company can build a mine and become a producer. Successful developers get a re-rating when they become producers.

Second, an existing producer can grow its production. Successful exploration around an existing mine can have a positive impact on future production growth. 

Third, exploration companies can add value by making a discovery or growing an existing discovery or deposit. 

If the company isn’t doing one of these things, it’s not going to be a leader in the market, and it will probably follow metals prices.

Right now, the bulk of my capital is in companies that are or can add value in one of these ways and have the potential to be 5, 7, and 10 baggers when the real bull market begins.

Gold Miners Bottom: 3 Ways To Add Value To Precious Metals Portfolios
 

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Gold Miners Bottom: 3 Ways To Add Value To Precious Metals Portfolios

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Comments (4)
Ollie North
Ollie North Apr 11, 2021 12:26PM ET
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Avg price of gold predicted to be $ 1800 this year by analysts on BNN Bloomberg past couple weeks...... I would agree there is some upside coming.
Felipe Daniel
Felipe Daniel Apr 11, 2021 11:15AM ET
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Eldorado Gold
Kaveh Sun
Kaveh Sun Apr 11, 2021 10:18AM ET
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I bought some gold because They will have to slow down selling bonds n start the printers again
Dark Side of the moon
Dark Side of the moon Apr 11, 2021 5:09AM ET
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Thanks!!!
 
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