Gold Stocks Crash, V-Bounce!

By Adam Hamilton – Re-Blogged From Gold Eagle

Gold miners’ stocks have endured epic volatility in this past month, literally crashing before blasting back higher in a violent V-bounce.  That preceding wicked capitulation flush savagely forced the weak hands out, paving the way for gold stocks’ next major upleg.  The resulting fierce rebound signals it is already underway, with plenty of speculators and investors now chasing the huge gains this sector is famous for.

Perspective is essential and exceedingly-valuable for traders.  If you don’t know where we’ve been and how we got here, you can’t figure out where we’re likely going.  Context is necessary to frame this past month’s extraordinary gold-stock action, and to successfully game where this sector should be heading.  Extreme volatility creates extreme opportunities, neither of which come around very often.  Carpe diem!

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Gold-Miner Valuations

By Adam Hamilton – Re-Blogged From Gold Eagle

The gold miners’ stocks have spent the past half-year mired in a high consolidation.  They haven’t been able to break out, but aren’t breaking down either.  This technical purgatory is working to slowly bleed off overboughtness and rebalance sentiment.  This necessary process to eradicate greed from the last upleg peak is never exciting.  But today’s low gold-miner valuations reveal great upside potential in their next upleg.

The world’s leading and dominant gold-stock trading vehicle and benchmark is the GDX VanEck Vectors Gold Miners exchange-traded fund.  It commanded $13.2b in net assets in the middle of this week, 2.7x larger than its next-biggest competitor GDXJ.  The major gold miners’ stocks included in GDX soared this past summer, blasting higher after gold’s decisive breakout to its bull market’s first new highs in several years.

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Gold-Stock Upleg Pauses

By Adam Hamilton – Re-Blogged From Gold Eagle

The gold miners’ stocks have slumped in January, tilting sentiment back to bearish.  This sector’s strong December upward momentum was checked by gold’s own upleg stalling out.  Gold investment demand growth slowed on the blistering stock-market rally.  But uplegs always flow and ebb, and this young gold-stock upleg merely paused.  The gold miners’ gains will likely resume soon, rekindling bullish psychology.

Most investors and analysts track the gold-mining sector with its leading ETF, the GDX VanEck Vectors Gold Miners ETF.  GDX was this sector’s pioneering ETF birthed in May 2006, creating a huge first-mover advantage that is insurmountable.  This week GDX’s net assets of $9.9b were an incredible 56.7x larger than the next-biggest 1x-long major-gold-miners ETF!  GDX dominates this space with little competition.

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Gold-Stocks Forced Capitulation

By Adam Hamilton – Re-Blogged From Gold Eagle

The gold miners’ stocks suffered a rare capitulation selloff over the past month or so.  Selling cascaded to extremes as stop losses were sequentially triggered, battering this contrarian sector to exceedingly-low levels.  While very challenging psychologically, capitulations are super-bullish.  They rapidly exhaust all near-term selling potential, leaving gold stocks wildly oversold and undervalued which births major new uplegs.

Capitulations are quite rare which makes them inherently unpredictable.  The vast majority of selloffs end normally well before they snowball into capitulation-grade plummets.  But very seldomly heavy selling just continues to intensify rather than abate like usual.  The word capitulation means “the act of surrendering or giving up”.  That’s exactly what happens in these extraordinary selling events, traders stampede for the exits.

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