Gold Miners: Watch This Technical Level Closely!

| February 15, 2014 | 0 Comments

gold minersGold miners are really starting to heat up…

Ever since I wrote about buying them here, miners have made some nifty gains.  As a matter of fact, the Market Vectors Gold Miners ETF (GDX) is up a solid 12% since that article.  And remember, that’s on top of the 11% gold stocks gained from the start of the year.

All said, GDX is up an impressive 23% on the year!

Why the sudden outperformance from an industry thrown in the trash bin by investors last year?

Maybe you remember, GDX was the red headed stepchild of the investment world in 2013 as it succumbed to a jaw-dropping 55% loss.   But with the price of gold on the mend in recent months, oversold miners are the first place value investors are looking for gains.

But if you think it’s going to be an easy rise for gold stocks from here on out, guess again…

Market Vectors Gold Miners ETF

As you can see, gold stocks have jumped to the 200-day moving average (red-line).  And as you may know, that’s a very important technical crossroads.

Ask any technical analysis expert and they tell you the same thing- when a down trending asset rallies to meet this down sloping line, it’s usually interpreted as a sell signal by investors.  

You see, experienced market participants have a tendency to key trading decisions off the 200-day moving average.  And since GDX is still officially in a long-term bear market, these investors will jump at the opportunity to sell (and possibly short) GDX at the highest price in months.

So what should you do?

Is it time to collect your profits off the recent rise in gold miners?

Or should you keep holding in hopes of higher prices?

To answer that question, you must realize what your investment goals are in the first place.  If you’re merely looking for short-term gains to juice your overall portfolio, go ahead and sell GDX at current multi-month highs.  You may get a chance to buy the ETF at lower prices in coming months.

But if you’re a long-term investor looking for serious gains, stick to your guns… 

Even though the current technical situation points to a pullback in miners soon, surprising price gains in the gold market can alter that picture quickly.  As a matter of fact, this morning’s trading session has the yellow metal jumping by $15 an ounce. 

If gold continues rising unabated, miners may leave the 200-day moving average in the dust!

In such a scenario, new money will likely flow into miners as investors fear they’ll miss the chance to invest in the industry at multi-year lows.

Bottom line…

Recent gains in GDX are impressive.  As a result, short-term traders may want to book some profits.  But if you have the patience and fortitude, stick with the mining industry for the long haul.

Until Next Time,

Justin Bennett

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Category: Gold

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.