Gold stocks exploded higher on Friday. The VanEck Vectors Gold Miners ETF (GDX) gained nearly 4% – in just one day.

This looks like the start of a several-week-long rally phase for the gold sector – because the GDX/Gold ratio chart is now trending higher.

Let me explain…

The best way to spot the turning points in the gold sector is by following the GDX/Gold ratio.

We get this ratio by simply dividing the price of GDX by the price of gold. This ratio tells us how strong or weak gold stocks are relative to the metal.

You see, the action in the gold stocks leads the action in gold. If the GDX/Gold ratio is moving higher, it means gold stocks are stronger than the metal. That’s usually a good sign for the sector and for the price of gold.

If the ratio is moving lower, then gold stocks are weaker than the metal. That’s usually bearish.

If you own gold stocks, then you want the GDX/Gold ratio to be moving higher. That’s when you get the strongest, most bullish action in the gold sector.

But if you don’t own gold stocks yet, and you’re looking to get in, then you want to look for signs that the GDX/Gold ratio is bottoming, and then buy into the sector just as the ratio turns higher.

To get an idea of what I’m talking about, take a look at this one-year chart of the GDX/Gold ratio…

Over the past year, this ratio has traded between 0.0145 on the downside and 0.018 on the upside.

The squiggly blue line on the chart is the 9-day exponential moving average (EMA) line – a weighted average of the ratio over the past nine days.

All you need to know about this line is that it indicates the short-term trend of the gold sector. If the ratio is trading above the squiggly blue line, then the short-term trend is bullish. If the ratio is below the 9-day EMA, then the immediate trend is bearish. It really is that simple.

Now, if you’re looking to buy into the gold sector, then an easy strategy is to wait until the ratio is near the lower end of its trading range and then pops above its 9-day EMA. If you own gold stocks and are wondering when’s the best time to take profits, well… that’s when the ratio is near the upper end of its trading range and then drops below the 9-day EMA.

The blue arrows on the chart above show the optimum times, in my opinion, to buy into the gold sector. The red arrows point to the best time to sell.

Here’s how GDX performed after each trading signal…

By following the signals from the GDX/Gold ratio chart, traders would have sold – or even shorted – gold stocks last July when GDX was above $22 per share. Then they would have bought into the gold sector in September when GDX was trading near $18.

The uptrend in the gold sector persisted for several months until April – when the GDX/Gold ratio chart clearly broke down. Traders could have exited positions when GDX was trading near $23.

The gold sector started moving lower in April. It wasn’t a dramatic decline. GDX dropped only about 10% or so from its April high.

In early May, though, the GDX/Gold ratio chart popped above its 9-day EMA. I told my Jeff Clark Trader subscribers [subscribers can see here] the ratio was signaling the start of a new uptrend for the gold sector. And I expect GDX will be higher several weeks from now than where it is today.

Friday’s action confirms the signal.

Gold stocks are headed higher for the next few weeks. Traders should take advantage of any short-term weakness in the sector and use it as a chance to buy.

Best regards and good trading,

Jeff Clark

Editor’s Note: The very first trade Jeff recommended in his new service, Jeff Clark Trader, was on GDX. It’s up 83% in just one month. 

And that’s because, when recommending trades, Jeff just uses the same strategy worked so well for him throughout the years. It’s low-risk, high-reward, and can outperform your typical “buy and hold” strategy. He should know – it helped him retire 25 years early.

To find out more about this new service, and how you can see gains like 83% in one month, click here…

Reader Mailbag

Today, subscribers thank Jeff for successful trades…

Closed my first trade with Jeff! Got in at $0.66 and out at $1.02 for 55% gross profit! Thanks so much for the confidence boost going forward.

– Graham

Just wanted to say thanks to Jeff on his trade recommendation today. Great trade… ended up $10,000 for the day. Love your work Jeff.

– Dave

Have you booked any wins lately, in the gold sector or elsewhere?

Let us know, along with any other stories, questions, or suggestions at [email protected].