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Buy Gold Miners on The Dip?

Published 04/13/2021, 09:34 AM
Updated 04/13/2021, 10:01 AM
© Reuters. Buy Gold Miners on The Dip?

Gold traded higher last year and peaked in August. Since then, the yellow metal has been trending downwards, though its long-term trend remains bullish. Gold mining stocks provide higher returns, especially junior miners as the price rises. Should you invest in a junior mining ETF such as the VanEck Junior Gold Miners ETF (NYSE:GDX) (GDXJ) on the dip? Read more to find out.

  • Gold had a rough first quarter in 2021
  • The long-term trend remains bullish
  • Mining shares offer leverage
  • Growth with GDXJ
  • Levels to watch in the gold market
Since the turn of this century, the optimal approach to the gold market has been to buy it when it looks like it is about to plunge and sell the precious metal when it seems ready to blast off on the upside. Gold reached a bottom at the $250 level as the United Kingdom parted with half the country’s reserves. In 2011, it peaked at over $1920. In 2020, it made a higher high at $2063 per ounce. At the end of last week, the yellow metal was trading at the $1744.80 level.

Gold has traded in lockstep with the US bond market over the past few months. The $318.20 decline from the August 2020 shaved 15.4% off the price. The 30 Year US Treasury bond futures dropped from 183.06 to below 157 over the same period, a decline of over 14%. Higher interest rates increase the cost of carrying a long gold position.

Bonds compete with gold for investment capital as they offer a yield. Meanwhile, Bitcoin was below the $12,700 level last August when gold reached its latest peak. Gold is over 15% lower, while Bitcoin moved nearly five times higher over the period.

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