For Gold Miner Trends, Watch AMEX Micro-Caps, Not Just GDX And GDXJ

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Includes: FNV, GDX, GDXJ, VGZ
by: Geoffrey Caveney

Summary

On Tuesday, as the market bounced off the Friday-Monday post-Brexit decline, gold miner ETFs GDX and GDXJ gave back some of their gains.

But at the bottom end of the sector, many of the smallest gold miners continued to rally on Tuesday.

To get a more complete picture of gold miner trends, watch the micro-caps on the AMEX as well as GDX and GDXJ.

Most investors who follow gold miners at all, look at the Market Vectors Gold Miners ETF (NYSEARCA:GDX) and the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) to follow trends in the sector.

But even GDXJ does not fully capture the trends among the smaller gold miners. On Tuesday, while the large-caps and mid-caps in GDX and the small-caps in GDXJ were giving back some of their post-Brexit gains from Friday and Monday -- many micro-cap gold miners listed on the AMEX exchange continued to rally.

The following two charts show just how extreme the divergence between them was today. (Charts courtesy of finviz.com, an excellent stock information and screening website.) The first chart lists large-, mid-, and small-cap gold miner stocks on the NYSE. The second lists micro-cap and a few nano-cap gold miner stocks on the AMEX. The "Change" column on the right gives Tuesday's performance for each stock:

Look at the divergence in performance! The NYSE gold stocks almost all sold off: only reliable royalty company Franco-Nevada (NYSE:FNV) managed a small gain. But many of the AMEX micro-caps had banner days, with four of them up over 7% and four others posting sharp gains as well. (And even the Vista Gold (NYSEMKT:VGZ) decline is a bit misleading too, as the stock is up over 500% this year, and today was a small giveback having little to do with post-Brexit reaction.)

I highly recommend that investors interested in following gold miner stocks monitor the performance of these AMEX micro-caps in addition to GDX and GDXJ. The AMEX stocks attract fewer short-term traders and speculators, and more medium- and long-term investors betting not just on how far gold will go up this year, but on the possibility of the gold price rising as high as $2,000/oz and beyond in the years ahead. Many of these micro-cap companies have mines with large but low-grade gold deposits that are not profitable at today's gold prices, but will become enormously profitable with gold at $2,000/oz.

For a full picture of the gold miner sector it is also necessary to go outside the U.S. exchanges and look at the numerous micro-cap and nano-cap gold miners on Canada's TSX Venture Exchange. I have written about some of these stocks in other articles. But investing in foreign penny stocks involves extra costs and very low liquidity for U.S. investors, so the AMEX micro-caps are a convenient group of stocks to follow in the U.S. They give you an important part of the picture that doesn't always show up in the daily moves of GDX and GDXJ.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long a variety of gold miner stocks, including some listed in the charts in the images in the article, but none mentioned in the text of the article.