How to Master Gold Stocks

Gold stocks can be really tricky for investors.

Including them in a long-term portfolio can often mean choppy returns.

For example, the VanEck Gold Miners ETF (GDX) is down 0.46% so far this year. Its one-year performance, however, is much better at 9%.

And if you’d held GDX over the last five years, you’d be sitting on a nearly 40% return. That all sounds pretty good, right?

But consider this: the all-time return of GDX is actually -20%.

This means that timing is especially important when it comes to gold stocks. Getting in either too early or too late can mean potentially losing a lot of money.

That’s why I don’t tend to trade gold stocks all that often. They stay on my watchlist, and I do keep a close eye on them, but it’s all about timing for me.

If there isn’t a great setup in the making, then it’s best to ignore them and stay patient.

Fortunately, gold stocks could be setting up for a very exciting move in the near future.

Let’s check out this chart of GDX below so you can see what I mean…

There are two important things going on with this chart. The first important feature is the parallel channel that’s contained a decline in GDX that started on May 4.

Trends, both up and down, are often contained within parallel lines. When prices break out of a parallel channel, it’s a strong signal that the previous trend may be coming to an end.

As we can see on the price chart, GDX is currently near the middle of the channel after bouncing off its upper boundary line on July 18. It’s likely that prices will now try and reach the lower boundary line, which currently comes in around $27.

This brings us to the second important feature of this price chart, which is the highlighted support zone between $27.82 and $28.32.

This zone served as a launching pad for GDX back on March 9, when the ETF found a bottom after a 15.5% decline. GDX then went on to rally for over 22% before putting in its May 4 top.

This means that we have a cluster of technical support that tells us where to look for a potential bottom forming in GDX. While there could be a bit lower to go, this analysis suggests the bigger move in gold stocks will be to the upside.

Happy trading,

Imre Gams

Have you traded GDX successfully in the past?

Let us know your thoughts – and any questions you have – at [email protected].