Gold mining stocks arrived at a make-or-break level. It was only 6 months ago when everyone was convinced that the gold sector entered a new long term bull market. Nothing seemed to be further from the truth, and we sent a sharp warning in August, saying gold was about to test the last resistance area of its bear market. Our warning was spot-on, as gold and miners went sharply lower as of that point.
In the summer, sentiment was so bullish that analysts were recommending to buy gold mining stocks at their 50 day moving average, around 29 points in the GDX. Meantime, the GDX mining index is trading 30% lower.
Recently, this analyst on MarketWatch, with a track record forecasting markets, came out with a recommendation to buy gold mining stocks as they could double in 2017. His ultimate entry point was 19.50 to 22.00 in the GDX. Currently, the GDX ETF is slightly below that level.
Our own analysis shows that this is not a time to be in a haste to buy gold miners. We use the HUI gold mining index for our analysis, see below chart.
Wait before entering a buy position in gold mining stocks
Gold mining stocks can go both directions from this point on. They now trade at the 2009 bottom, which coincides with the 2004 and 2005 bottoms. This is an extremely important price level, and patience is the required at this point.
If, and that’s a big IF, this price level gives away, gold miners will fall another 30%, towards the lowest support level, see chart.
Let’s be clear: we are not saying that miners will crash, nor are we saying that they will rise. We do not have a crystal ball. We are saying that they can go both directions, and this price level is one of the few really important price points on the chart.
Gold miners are known to be extremely volatile. So any move higher or lower will go fast, and a breakout or breakdown scenario will be visible very fast as well.
Watch closely what happens in the gold mining sector, as a sharp move will follow soon, and investors can take a position long or short.
One thing: if gold miners will fall, we will be big buyers around the 110 level in the HUI index, as we believe gold miners could provide a once-in-a-decade opportunity to make big money in a short period of time. 2017 is setting up to become a very interesting year, and we recommend checking our gold price forecast for 2017 in which we will update periodically the evolution in the gold market.
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