Will Gold Stocks Outperform In 2016?
Gold Stocks Rally: Room To Run?
Gold mining stocks have been on a roll the past few days…
In fact, the Market Vectors Gold Miners $GDX is up a solid 16% since diving to multi-month lows on January 19th.
Take a look…
As you can see, the closely watched mining ETF rallied back inside the volatile trading range that has been in place since July 2015. So while the recent rally has brightened the hopes of gold investors, $GDX isn’t quite out of the woods yet.
But here’s what I find really interesting…
A longer-term view of the same chart reveals $GDX is on the verge of a major technical break.
Let me show you what I mean…
Look closely and you’ll find $GDX sold off every time it rallied to the blue down trend line. But as you can also see, the ETF rallied each time it fell to the green support line.
With the blue and green trend lines converging into a tightening range, it’s likely we’re nearing a big price break for gold miners.
Which way will investors send $GDX?
Will buyers carry the ETF higher? Or will sellers take it to new multi-year lows?
Here’s my take…
It should come as no surprise that gold miners closely follow the price of the commodity they mine- gold. And as you may know, the yellow metal is starting 2016 off with a bang- up 6.3% year to date.
But here’s what’s really important…
The recent rally has gold in a very similar technical situation as gold miners. The metal is nearing an essential resistance area that will make or break the next few months of trading.
Take a look…
As you can see, gold is approaching two forms of technical resistance. Not only is the 200-day moving average (red line) getting close but so is the down trend line from the early 2015 highs (blue line).
Here’s the deal…
Given the newfound economic uncertainty and the panic it has caused for equities the past month, this is likely the year gold and gold mining stocks shake free of their bearish chains.
In other words, I expect gold’s multi-year downtrend to come to an end in 2016.
Now listen closely…
While gold may not be able to break above technical resistance on the first attempt, I suspect we’ll see new multi-month highs at $1,200 an ounce by the second quarter of 2016.
Of course, that means the next few weeks will be a pivotal time for gold miners. Buying into any pullbacks near the green support line will likely pay big rewards later this year.
How do you capitalize on the situation?
The easiest way to profit from swings in gold stocks is to trade the aforementioned $GDX. But you could also look to top tier miners like Newmont Mining $NEM, Barrick Gold $ABX, and Goldcorp $GG.
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 https://commoditytradingresearch.com/free-sign-up.
Category: Gold, Technical Analysis
