Is It Time to Buy Gold Miners? Watch This One Chart
After sleepwalking through much of 2021, precious metals and miners may finally be waking up.
Is it time to buy? We’ll know by the end of the week. Today, I’ll tell you what to watch and offer some investing ideas if it IS time.
First, gold is down 4.4% year to date. Compare that to a 21.8% march higher in the S&P 500, a 22% year-to-date rally for copper or a 38% rise for crude oil.
No wonder investors are shunning the once brilliant metal. So far this year, it’s simply been easier to make money elsewhere.
That may be about to change, though.
First, you need to know that miners lead metals, both up and down. So, if we’re looking for signs of life for a rally, we look at the gold miners. And an easy way to track that is the VanEck Vectors Gold Miners ETF (NYSE: GDX).
It tracks a basket of the biggest gold and silver miners.
Last Friday, the GDX enjoyed a big rally on massive volume. This got many of the goldbugs excited, thinking that finally — FINALLY — precious metals and miners are going to wake up. Adding to the bullishness is my favorite momentum indicator, the Force Index, which gave a “buy” signal.
Look at the daily chart for GDX:
However, I’m not sold yet.
That’s because we saw the same big rally on the same big volume back in May. That led to the GDX going sideways for a while, then falling down the stairs. It then gapped and fell, then gapped down hard again, and has been in a downtrend since. Another bullish fake-out starting on July 29 fell apart after a week.
And THAT’s why everyone has been disgusted with miners and metals … up until last Friday, anyway.
But as I said, many are turning bullish. I’m not buying my ticket on the gold train just yet, though. So, what do I need to see to convince me?
What I need to see is gold close HIGHER out of its current range. And I’d like to see it by Friday.
If that happens, I’ll be much more bullish next week. If not, then we’ll wait a while longer.
While you’re waiting, here is bullish news on gold:
1. Gold demand in China is booming. After falling 20% in 2020, gold demand in China jumped 69% in the first half of this year. Sure, part of it is easy comparisons. But another part is that this is the Year of the Dragon, according to the Chinese calendar, and Chinese millennials are snapping up all sorts of gold dragon jewelry.
2. Global gold production keeps falling. In fact, production from the world’s gold mines peaked back in 2018. It’s been downhill since. And as the supply of something falls, prices tend to go higher.
3. Consumers are snapping up gold coins. According to The United States Mint, sales of American Eagle gold coins totaled 136,000 ounces in August, more than double the amount sold in July. Other mints around the world report rising demand. And sales of silver coins are surging, too.
4. Then there’s what sparked Friday’s rally in gold and miners: Fed Chair Jerome Powell’s speech at Jackson Hole. He promised that the Fed would continue to let the easy money flow. And central bankers in Europe are backing off of recent hawkish talk, too.
So, you can see why the gold bulls are sharpening their horns for another run down Wall Street.
What Should You Buy If This IS the Bottom?
You really can’t go wrong with the VanEck Vectors Gold Miners exchange-traded fund (ETF).
Or, if you have the appetite for more risk and reward, try the VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ). They’ll both be on the launch pad if this new bull is the real deal.
Or you can drill down into the holdings of either of those funds to find individual stocks. They’re riskier than ETFs, but they can go a lot higher, too.
Keep your eye on that chart and hope in your hearts. Gold’s big rally has been delayed, but all the fundamentals tell us it won’t be denied.
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