Gold miners’ stocks have spent the past half-year mired in a high consolidation. They haven’t been able to break out, but aren’t breaking down either. This technical purgatory is working to slowly bleed off overboughtness and rebalance sentiment. This necessary process to eradicate greed from the last upleg peak is never exciting. But today’s low gold-miner valuations reveal great upside potential in their next upleg.
The world’s leading and dominant gold-stock trading vehicle and benchmark is the GDX VanEck Vectors Gold Miners exchange-traded fund (NYSEARCA:GDX). It commanded $13.2b in net assets in the middle of this week, 2.7x larger than its next-biggest competitor GDXJ. The major gold miners’ stocks included in GDX soared this past summer, blasting higher after gold’s decisive breakout to its bull market’s first new highs in several years.
GDX’s strong 29% surge over the next 2.5 months into early September capped a larger 76.2% upleg over 11.8 months. Naturally last summer’s sharp rally generated much excitement and greed in this small contrarian sector. So the gold stocks needed to correct or consolidate, either selling off deeply enough or drifting sideways long enough to restore sentiment balance. Excessive greed is inherently unsustainable.
So after peaking at a 3.1-year high of $30.95 in early September, GDX initially started correcting with a 15.4% retreat over the next 1.3 months. That’s really small as far as gold-stock corrections go, as this bull’s prior two averaged 35.4% GDX losses over 11.8 months! And this sector as measured by GDX had shown no major technical bottoming signals, like falling back to or under its key 200-day moving average.
But since then that proto-correction morphed into a high consolidation. After that mid-October correction low, GDX spent the next couple months meandering between $26 to $28. Gold breaking out of its own correction downtrend on Christmas Eve unleashed
