Are gold miners bottoming?

samsonOn September 30th in this column I explained that the time had not yet come to buy gold and that the proxy for gold (GLD) would have to reach $137 before the time to bet on gold in a big way had come.

Gold has gone nowhere since I wrote that article, in fact, it’s down a bit since then. If you’re a fan of gold, or you simply are trying to protect your wealth against the government’s LCP4 (legalized counterfeiting program part 4), you must be growing impatient with all these ‘false dawns’ lately.

But have gold miners bottomed? Has the time finally come? Let’s see…

Let’s take a look at the fund that covers a basket of gold miners, GDX. First let’s look at the longer term chart

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Source: Stockcharts.com

Yes, not a pretty sight, is it? That blue line representing the 30 week moving average is still pointing down aggressively. But what you can also see there is that volume of buying and selling has picked up (the red and grey bars along the bottom), as well as what appears to be a level forming below which GDX does not want to go, perhaps the floor in prices. Let’s take a closer look at what’s been going on in that area since summer…

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The red line is that same 30-week average, and as you can see, GDX is bouncing off of it. The blue line is the 10 week average, and it’s even bouncing off that of late. When that red line as at least leveled off AND GDX breaks out above it, gold miners will be on the way up. As it stands though, this isn’t an exciting chart. As a trader, you need to be thinking about the opportunity lost by your money not working its hardest- all the time you’re clinging on to a trade that’s going nowhere, that’s an ‘opportunity cost’.

But there is some light at the end of the tunnel…

Around the $22-$24 zone it appears that GDX refuses to go further down, AND GDX just closed at $24.08, so it’s close to the bottom. Anything can happen, and I still don’t like the averages pointing down like this, so this won’t be a fast or guaranteed ride, but if you these prices could be close to ‘as bad as it gets’ for GDX. The key here, if you do want to buy, is to be highly selective and to focus on the best gold miners in this sector (GDX is just a representative basket).

This may well be ‘the bottom’ for gold, and buying here could well reap rewards. This ‘amber light’ could soon turn green.

Best,

Jim.

 

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