Since early 2008, Gold futures have risen almost 30% and are within 2% of all-time highs. Same story for the Gold ETF (GDX)? NO! GDX finds itself at the same price as 30 months ago, up against line (1) in the chart below.
With another ascending triangle at hand, odds favor an upside breakout. Since GDX has struggled so much at resistance, use the following game plan.
Plan A… Bring stops up tight to protect values. Plan B….If GDX can break resistance, the rally should be huge, since they have lagged Gold for so long! Be ready to own a larger percentage of this ETF due to how strong the breakout could be!!!
Gold broke its 30-year fib 1.618% level and Silver broke above its 30-year 38% Fib retracement level.
Yes I did share that if these breakouts would take place, investors should own MORE THAN normal positions in the metals complex. Owning these breakouts has been rewarding of late!
GDX is attempting to break its 2008 highs, as it moved above the 2008 highs yesterday by a very small percentage! Mentioned in the “Junior Mints” post on 9/14 that the Junior gold mining stocks had already broken resistance, which was a positive for this complex.
Now that GDX has broken resistance does your Plan B (own a larger precentage of gold shares than normal)recommendation still hold? Does this recommendation apply to both GDX and GLD?
From StockCharts.com’s “Don’t Ignore This Chart” blog, at:
September 10, 2010
$GDX forms exhaustion gap at resistance
By Arthur Hill
The Gold Miners ETF (GDX) surged to resistance at the end of August and then formed a big bearish engulfing the first trading day of September. After stalling on Thursday-Friday last week, the stock gapped up on Tuesday and then came down hard Wednesday-Thursday this week. The gap failed and it is looking like an exhaustion gap at resistance.
Posted by Arthur Hill at 06:20:34 AM
Impressive week for resistance, not GDX. Gold stocks continue to struggle at resistance. Stocks in general, 500 index, had a good week and gold shares for the week were up less than a half percent.
Oh just a simple farmboy from Norway….
Ah, Norwegian… So maybe you’ll be our oil and gas expert!
Jeff, I have no special knowledge of gold at all. At times I have observed a divergence in the price action of miners versus physical gold. I read some industry news now and then but try to trust the charts no matter.
My name is Norwegian and it is my real name. My American wife spends 4-6 months a year in South Africa and speak Africaan…but she is unfortunately not involved in mining operations.
Tim Ord has been advocating GDX for months in his weekly commentaries which are listed at:
The commentaries are published on Wednesday and today’s commentary includes an annotated chart of GDX, which Tim discusses in his text.
It must be said that Tim’s syntax and his spelling are so badly mangled that readers must make their own assumptions about the meanings of some of his text. Either Tim is disadvantaged in his use of the English language because he spoke Japanese, rather than English, for the first 20 years of his life (while he was growing up as a farm boy in Nebraska…), or else he uses voice-regognition software without checking the accuracy of the output, or he may be afflicted with a severe case of dyslexia. He provides annotated charts which are very different from Chris’s lucid presentations, but which are painstaking, and which seem to be sincere. His technical assessments of GDX may be of interest to anyone who’s considering a purchase of the fund.
Well… tags to assure that HTML code is shown as HTML code don’t seem to work!
(I apologize for “cluttering” this thread with this “shop talk.” Chris, feel free to delete these messages, but I’m sure you’ll want to allow some HTML in reader comments.)
(Limited test result:
It looks like
seems to be ignored…)
Does this blog permit HTML in its “Comments” threads?
Chris: Would you agree that it might be a good idea to add a brief explanation to the “Comments” interface about whether HTML tags are permitted? As you know, many blogs list the tags which readers can use to format their comments, such as by adding boldfacing, underlining, quotation indenting, italics, etc.)
Thanks for contributing to this thread.
I think your comments about the underperformance of miners’ stocks relative to “physical gold” are correct, and (for whatever it’s worth, considering my near-complete *ignorance* of gold and of gold stocks) I “agree” with you, so I don’t ask this to challenge you, I ask it respectfully: Do you have special knowledge of gold? [I’m hoping “Svein” isn’t a mere “screen name.” I hope it’s an Afrikaans given name and I’m hoping you’re a gold *expert* from the RSA!]
I mention “special expertise” because I think all investors should be aware of “hidden dangers” which may be associated with commodities and with stocks which are closely related to commodities, such as gold miners’ stocks. The case of the adverse effect on UNG of the “contango” market in natural gas was one example of such a “hidden danger.” The regular “roll-overs” of near-month futures contracts “in the face of” a contango market has pretty much “doomed” that fund. That problem could even be regarded as “mechanical”; it results inevitably and relentlessly from the fund’s basic method of operation. I strongly suspect that most investors who bought shares of UNG because they expected a profitable “reversion to the mean” of the historical relationship of the price of natural gas to the price of oil were blissfully unaware of this “hidden danger.” (Chris: You might want to consider adding “Hidden Danger” to “The Power of the Pattern!” I’m just kidding, but you seem to like these “slogans”! You can encourage investors to “Let the Power of the Pattern be your friend,” but you might also want on occasion to warn them to “Beware of hidden dangers!”)
I realize that gold miners’ stocks *are* stocks, not commodities, but they’re so closely associated with “physical gold” (specie/bullion) *as* a commodity, that commodity-related details of this type may well influence the market price of the stocks.
Chris… my guess is the GDX will not break to the upside untill we are done with this bounce…. or maybe the market has to break below 1040 first.
very much unimpressed today, in that the stock market is up almost 3% and GDX is down over 1%! Resistance remains strong!
Great comment per UNG…so true that it didn’t follow the price if Natural gas. UNG’s poor performance had much to do with the rolling over of futures contracts inside of the ETF. Many of the commodity based ETF’s have struggled due to this problem..a big one being USO.
GDX is gold stocks. Why has GDX underperformed compared to Gold? Do we need to look any further than the stock market?
I forgot to point out the painful lesson which was learned by anyone who bought shares of UNG in the last year or so in reliance on arguments that natural gas was selling at a price which was far below its historic relationship to the price of crude oil. I mention this in response to your emphasis of the supposed “imbalance” of the prices of GLD and GDX. The price of natural gas was expected to revert to its mean, which would have meant it would have increased substantially. UNG has been a DISASTER. The natural gas market’s been in a state of “contango” and this fund loses money whenever it “rolls over” an expiring short-term contract. (The fund’s a “commodity pool.” It owns natural gas contracts.) The price of natural gas never reverted to its historical relationship to the price of crude oil.
Those details relate to the comparison of two different commodities. Comparisons of commodities and of the common stock of commodities-producers may be much more questionable.
I “second” Svein’s thanks for your prodigious output, Chris. You already know that I follow your charts closely.
I know very little about gold, either about gold as “specie” (aka “bullion”) or about gold-miners’ stocks, but I have often seen references to the differences between gold as a commodity (e.g. GLD) and gold-mining common stocks (e.g. GDX). You refer to the “challenges of the stock market.” Svein may have been suggesting that they influence the price of GDX. They seem to be irrelevant (at least directly) to the price of GLD.
You’re comparing the price of a commodity with the price of the common stocks of producers of the commodity. Is this like comparing apples and oranges?
You often stress “The Power of the Pattern”! You emphasize in this case that an ascending triangle pattern is repeating, but you say you think “it’s different this time” (my phrase). You show how the price of this fund was *severely* repressed previously, possibly by other unseen factors but possibly also by the same pattern which is recurring now. Why do you think that same pattern will produce “eye-popping” gains in the price of this fund this time if it may have had such a disastrous effect on the price of this fund last time? Are you relying on the history of this pattern? (You do say it resolves bullishly 65% of the time.)
Thank you the kind words, appreciate them!
GDX does hold the miners. I would guess some of the underperformance as well has to do with the challenges of the stock market.
If GDX breaks above resistance the gains could be eye popping!
Chris, first let me thank you for your great charts and sharing them with the rest of us.
If I am not mistaken, the GDX is the gold miner ETF while GLD is the ETF for gold bullion. The underpeformance of GDX is due to operational issues on the mining side.