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Make sure you sign up for the event right here, then read on for Jeff’s take on one of his favorite sectors to trade…
The Worst Time to Buy Gold Stocks
BY JEFF CLARK, EDITOR, MARKET MINUTE
It’s a bad time to buy gold stocks.
That’s a hard sentence for me to write. I’m a fan of gold. I love trading the gold mining stocks. And, readers who followed our advice and turned bullish on the gold sector two months ago are sitting on nice profits today.
But, traders who are thinking of buying the gold stocks right now should think again.
You see, the best time to buy into the gold sector is after the mining stocks have underperformed the metal for several weeks and are just starting to move higher.
The worst time to buy gold stocks is after they’ve outperformed the metal for several weeks and are starting to move lower.
The following ratio chart shows how the sector looks right now…
This chart shows the relationship between the price of GDX – a gold stock ETF – and the price of gold. When the chart is rising, it means gold stocks are outperforming the metal. When the chart is falling, gold stocks are underperforming.
The absolute level of the chart tells us how overbought or oversold the sector is. Over the past year, this chart has ranged between 0.017 and 0.025. So, when the chart is near the bottom of that range, the gold sector is oversold relative to the metal, and traders should be looking for opportunities to buy.
When the chart is near the top of its trading range, gold stocks are overbought. Traders should wait for a better chance to buy into the sector.
More important than the absolute level of the chart is its direction. The best time to own gold stocks is when this chart is rallying. The worst time to own gold stocks is when this chart is declining.
Back in July, this ratio chart turned higher from oversold conditions. It started to rally. And, we thought it was a good time to buy into the gold sector.
Now, though, we have the opposite setup. The GDX/Gold ratio chart has turned lower from overbought conditions. It’s falling. So, it’s a bad time for traders to buy into the gold sector.
Best regards and good trading,
Jeff Clark
Editor, Market Minute