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GDX - This Breakdown Is Fake

Leo Nelissen profile picture
Leo Nelissen


  • Miners are approaching a very dangerous spot after almost breaking out a few weeks ago.
  • However, this move seems to be fake and will offer an interesting entry for longs.
  • This move will be supported by further economic growth and a weakening dollar.

The most active gold mining ETF the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX) is currently breaking down and on the verge of doing serious damage to one's gold mining investments. In this article, I will tell you why this breakdown is fake and why I am buying gold miners.

From Almost Breaking Out To Breaking Down?

Normally, I never start with technical analysis but in this case, we are at an interesting point that might cause a lot of traders to make the wrong investment decision. What we see is that gold miners are breaking down after almost breaking out just a few weeks ago. A technical breakdown could drag miners down towards the Q4/2016 lows.

The last thing I want to mention regarding technicals is that these patterns tend to fail the further a certain charts moves towards the 'end' of the pattern. Not only does this add a little bit to the bull case, it is also fully supported by the indicators I am about to show you.

The Big Picture (Almost) Never Lies

The picture below might seem a bit messy without the proper explanation. What you see are three lines. The green line displays the leading economic ISM manufacturing index, the red one shows the inverted USD index while the candlestick graph displays the gold price (GLD).

The very first thing that strikes me is the fact that gold is not breaking down but close to breaking out. The gold price has stabilized in the fourth quarter of 2017 and is currently testing the downtrend that started after the recovery of 2016.

Most importantly, this move is fully supported by the USD. The simple sounding reason is the strong economic trend in the US. Hence, the green line which shows the leading ISM manufacturing index. This index tells us what we

ChartSPY data by YCharts

This article was written by

Leo Nelissen profile picture
Welcome to my Seeking Alpha profile!I'm a buy-side financial markets analyst specializing in dividend opportunities, with a keen focus on major economic developments related to supply chains, infrastructure, and commodities. My articles provide insightful analysis and actionable investment ideas, with a particular emphasis on dividend growth opportunities. I aim to keep you informed of the latest macroeconomic trends and significant market developments through engaging content. Feel free to reach out to me via DMs or find me on Twitter (@Growth_Value_) for more insights.Thank you for visiting my profile!

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in GDX over 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.

This article serves the sole purpose of adding value to the research process. Always take care of your own risk management and asset allocation.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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