Gold miners’ stocks blasted higher this past week, breaking out of their correction downtrend. Rapidly-improving psychology fueled such strong upside momentum that sector benchmarks are challenging months-old upleg highs. Most traders assume this is righteous, that gold stocks’ next upleg is starting to accelerate. But key indicators argue the contrarian side, that this breakout surge is a head fake within a correction.
In early September, a major gold-stock upleg peaked after soaring higher on gold’s decisive bull-market breakout in late June. The GDX VanEck Vectors Gold Miners ETF, this sector’s leading benchmark and trading vehicle, had powered 76.2% higher over 11.8 months. It crested the same day gold’s own upleg did, hitting $30.95 on close. That major 3.1-year high proved the apex of that impressive gold-stock upleg.
Gold started grinding lower after its own September 4th upleg zenith of $1554, capping a massive 32.4% run over 12.6 months. The gold stocks corrected with gold like usual, as these miners are essentially leveraged plays on gold. Since their earnings amplify gold-price changes, the major gold stocks dominating GDX generally leverage gold by 2x to 3x. So the gold stocks drifted lower over the next several months.