Gold stocks have enjoyed a terrific run over the past month.
The sector – as represented by the VanEck Vectors Gold Miners Fund (GDX) – is up 18% since the sector bottomed in late June. Much of that gain has been in just the past month – after the “smart money” turned bullish.
Here’s an updated look at the GDX chart…
But the sector is now overheating. GDX is approaching its February high of $25.70 – which was my ultimate target for this rally phase. And last week’s Commitment of Traders Report showed that commercial traders (aka the “smart money”) had amassed a net short position of 250,000 gold futures contracts.
That’s shy of the 314,000 short futures position the smart money held in gold (and gold stocks) in August of 2016. But it’s in the upper end of the range that usually signals that we’re nearing a top in the gold sector.
Also keep in mind that last week’s COT report reflects positions as of last Tuesday. The price of gold has rallied another $50 an ounce since then. It’s a pretty good bet that the smart money short position is quite a bit higher today (we’ll find out when the next COT report comes out on Friday).
My point to all this is that while we may not be at the absolute top of the current gold stock rally, we’re close enough to the top to take some more money off the table.
Traders should take advantage of any strength over the next day or two – especially if GDX rallies up towards the February high of $25.70 – to lessen their exposure to the sector.
We bought gold stocks as the smart money turned bullish back in July. Now, with the smart money turning bearish, it makes sense to take some profits.
Best regards and good trading,
Jeff Clark
P.S. Did you follow along with me and buy gold stocks alongside the “smart money”? Tell me your trading stories – as well as any other questions or suggestions – right here.