Gold Stocks Rally… Is This The Bottom?

| October 6, 2015 | 0 Comments

gold bars & coinsGold Stocks Rally- More To Come?

Something very interesting is happening with gold stocks…

Over the past few days, share prices of companies in the beleaguered industry have experienced sharp rallies.  Take Agnico Eagle Mines $AEM for example- the Canadian gold miner is up 16% over the past four trading sessions.

See for yourself…

Gold Stocks Rally, a chart of $AEM

As you can see, $AEM is rallying to multi-month highs over $28.  While the chart is impressive, the best way to shed light on the recent gold stocks rally is through the Market Vectors Gold Miners ETF $GDX

Gold Stocks Rally, a chart of $GDX

As you’re likely aware, $GDX holds a diverse basket of the world’s largest gold mining companies.  Names like Barrick Gold $ABX, Goldcorp $GG, and Newmont Mining $NEM are all held in this closely watched ETF.

Without question, it’s refreshing to see $GDX up 15% the past few days.  After months of bearish price action, an upturn brings much-needed relief to beaten down bulls. 

But what’s really catching my eye is the technical pattern in the chart above… 

Notice how $GDX is breaking above an important resistance trend line (declining red line) from the May 2015 highs.  What’s more, the gold mining ETF failed to drop below technical support at $13 (horizontal red line).

With $GDX rallying sharply higher from this consolidation pattern, there are good odds of additional gains to come.  In fact, I wouldn’t be surprised to the see the mining ETF trading at $17 in coming weeks.

What’s so important about the $17 area?

Let’s look to a long-term chart…

Gold Stocks Rally, a long-term chart of $GDX

As you can see in this 2-year weekly chart, $GDX still has a strong resistance line to overcome at the $17 area.  This downtrend from the 2014 highs will provide a considerable hurdle for the gold mining ETF to conquer.

Is there a fundamental reason for gold stocks to rally to that level?

Last Friday’s US non-farm payroll report was a huge disappointment.  In case you haven’t heard, there were only 142,000 jobs added in September- a far cry from the 203,000 job additions expected by economists. 

This dismal jobs performance lends to the idea that the US Federal Reserve will delay raising interest rates until early 2016- and possibly longer.

Of course, that’s good news for the price of gold.

Speaking of gold…

The yellow metal is on the verge of breaking above an important resistance trend line of its own.

Gold Stocks Rally, a chart of $gold

Should gold surpass $1,500 an ounce, which roughly corresponds with the red line in the chart above, we’ll likely see an additional rush of short covering in the commodity.

It’s not out of the realm of possibility to see the yellow metal rally to $1,200 should the red line be breached.

Such a bullish situation would add even more fuel to the fire for gold mining stocks.

Bottom line…

While I’m not yet willing to suggest a long-term bottom has been hit in gold mining stocks, I do believe there’s a good chance of solid upside in the near-term.

The combination of the technical factors above, along with September’s lousy jobs report, should have gold stock bears getting more nervous by the day.

Trade accordingly…

Until Next Time,

Justin Bennett

BIO:  Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.

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Category: Technical Analysis

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.

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