Editor’s note: With the markets closed for President’s Day, we wanted to share some of Jeff’s recent insights on the gold market from his daily trading blog, Delta Direct. Read on to see why the recent action could mark a bottom in the sector…
I don’t think I’ve ever seen my gold bug friends so depressed. Last week was murder on them.
Granted… gold bugs have had a tough time since 2011. We (yes, I consider myself a gold bug) have endured a horrible bear market even though we know the undisciplined policies of the world’s central banks will ultimately prove wildly bullish for gold and gold stocks.
But last week’s decline in GDX pretty much exhausted the patience of most of my gold companions.
GDX declined last week along with the broad stock market. It even dipped below $21 per share for a short time last Friday.
That action demoralized everyone I know who trades gold stocks from the long side. “If they can’t rally while the rest of the market is collapsing,” my friends said, “then there’s no hope. The gold sector will never rally.”
That’s the sort of sentiment that usually appears at gold stock bottoms.
So, I remain optimistic on gold stocks for the balance of 2018. GDX has support at $21 per share. That support was tested last Friday. It held. And the sector has bounced well off of support.
My only complaint is that GDX didn’t stay at the $21 level long enough for me to recommend selling an uncovered put option on the sector.
And if we look at gold stocks objectively…
Gold is now trading at its highest price since mid-2016. Meanwhile, GDX is trading more than 20% below where it was trading back then.
So, there’s a really good argument that gold stocks are quite cheap right now relative to the price of the metal.
Sentiment towards the gold sector is abysmal. And the dollar looks like it’s ready to break down – big time.
Those factors, by themselves, keep me optimistic about the potential for a gold stock rally through 2018.
Now, I don’t want to stake everything on it. And I prefer to add exposure on weakness. But I like the potential for large gains in gold stocks this year.
So, I’m willing to hold onto a losing gold stock position in our Delta Report portfolio because I think it has large upside potential. And I’ll continue to recommend other gold stock trades to my Delta Report readers – when they offer good risk/reward setups.
We did really well trading the gold sector last year, even though GDX went nowhere. This year, I think GDX will see double-digit gains. And I definitely want my readers to be involved in the sector.
Profiting in the gold sector in 2018 is going to take some patience. And it’s going to take some faith to go against the crowd.
But I’m telling you this… not since the retail sector bottomed last September have I seen a stronger fundamental argument for buying into a sector.
Buying retail stocks last September was a leap of faith. But we had multiple retail stock trades that paid off well.
I expect that months from now, we’ll look back at the gold sector with the same sort of fondness.
Best regards and good trading,
P.S. My Delta Report subscribers are set with the best trades to take advantage of the gold stock run I see coming. And I write to them throughout the week about these positions… so they know exactly when it’s time to profit.
To learn more about the Delta Report and all the benefits it provides, click here.
Today, readers respond to Thursday’s issue, “The Stock Market’s Next Move”…
Great analysis as always. One analyst says the 2018 correction is similar to the Ebola scare of Oct. 2014 – scary drop, then a straight move up to new highs within a month.
I don't know of course, but it feels like this could happen again – or perhaps a 90% re-trace of the losses.
If someone only had access to a watch list of tech momentum stocks with AMZN or CRM on top of the list, last week would have looked just like some boring summer days with thin trading volumes. They would not have known something historical happened.
Those high fliers were barely scratched and just one oversold bounce away from getting back to their all-time highs even when the Dow was down more than 10%. That was simply a manipulated attempt by Wall Street to persuade incoming new Fed chair away from QT.
In margin calls you sell what you can, not what you want. It’s insensible to leave obscenely valued high fliers alone while liquidating the rest of the portfolio. At one point AMZN actually made an all-time high during one of those days that the Dow dropped 1,000 points, so your gold bug friends were clearly premature about a “market collapse.”
Rising 10-year Treasury yield now looks like just a convenient excuse for all that volatility, as we saw this week the stock market continues to advance while the 10-year yield went as high as 2.9%. Those wolves can still play the game in a higher interest rate environment, but draining money out of the system is a whole different story. Little has changed in the stock market’s characteristics, the whole thing is still rigged.
Jeff is absolutely right about one thing: that was not “it.” However, there will be more persuasions by Wall Street to see how far they can push this new Fed chair. On one of these attempts someone may lose control or fall over the edge in the process, then the whole house of cards will come apart.
I agree, next week(s) could be interesting. But gold could do well.
And also, some words from Delta Report subscribers on today’s gold insights…
I just wanted to say hello and thank you for providing your thoughts and feedback on gold stocks. I have also been one of those “depressed” gold bugs ever since 2016. I have been holding many underwater positions since 2016 now, waiting for the next leg higher.
I am very grateful for your knowledge and expertise, I have learned a great deal from you and because of you I will not make many of the emotion-driven mistakes that I have made in the past. I like your low-risk/high-reward approach to the markets and am very thankful for your continual guidance, thoughts, and analysis of the markets every day!
I really appreciate your frequent updates, commentary, and trade explanations in Delta Direct. It is a 2-for-1 on the subscription price – make money on trade recommendations and learn how an experienced master trader approaches the craft.
As always, don’t hesitate to send in your trading stories, questions, and suggestions right here.