We’ve been cautious about the gold sector here in Market Minute for the past couple of months.
Within just the past few weeks alone, gold stocks have fallen hard.
But now it’s time to start getting back in.
The VanEck Vectors Gold Miners Fund (GDX) traded as high as $41 per share in early April. But on Tuesday, it closed below $32 per share – a 22% drop in about one month.
That decline wiped out all the gold sector’s gains for 2022. And it shifted the technical condition from “extremely overbought” to “extremely oversold.”
This comes as no surprise…
In March, we pointed out that the “smart money” had turned bearish on gold.
And in early April, we noted that the GDX/GOLD ratio chart had reached an extremely overbought level.
So, we figured traders might have a better chance to buy into the gold sector later.
Now, after a sharp decline in the gold stocks over the past few weeks, we may finally have our chance.
Take a look at the GDX chart…
GDX rarely strays more than 8% away from its 50-day moving average (MA – blue line) before it reverses back toward the line.
In early March, GDX traded as much as 20% above its 50-day MA. It was overbought, and vulnerable to a decline.
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Today, GDX trades about 13% below its 50-day MA. It’s oversold, and we could see a “snap-back” rally start at any time.
Of course, there aren’t any guarantees in trading. Oversold conditions can always get even more oversold.
But based on my analysis, I believe the sector will trade much higher in the coming months.
So, if you were looking to buy into the gold sector anytime within the past two months – and you held off because of our warnings – you now have a much better opportunity to buy the gold stocks.
Best regards and good trading,
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Jeff Clark
Reader Mailbag
Have you been holding off on buying gold stocks? Will you buy into it now?
Let us know your thoughts – and any questions you have – at [email protected].