Buy Gold Stocks Now?

| July 31, 2015

Dumpster Diving: Is It Time To Buy Gold Stocks?

Over the past year, I’ve heard plenty of theories from mining stock analysts as to why investors should load up on gold stocks.

“… they’re cheap…”

“… the industry as a whole is under-valued…”

“… mining stocks are drastically oversold from a long-term technical standpoint…”

But just when you thought gold mining stocks couldn’t go any lower, they did just that.

Over the past few weeks, the mining space succumbed to a viscous downturn.  In fact, the Market Vectors Gold Miners ETF $GDX, a great representation of overall gold stock performance, has declined 24% over the past month.

No doubt about it, gold mining stocks are getting crushed.

Take a look…

Buy Gold Stocks Now, a chart of $GDX

As you can see, investors have been dumping $GDX without hesitation.  Once multi-month technical support in the $19 area gave way in late June, there was no stopping the ensuing downturn.

But with this gold mining ETF down 30% since mid-May, is it finally time to buy gold stocks?

Only if you’re quick.

Let me explain…

You see, despite trading at it cheapest price in nearly seven years, $GDX is likely heading even lower over the next few months. 

Why?

For starters, the price of the commodity gold miners produce is falling off a cliff.

With gold breaking below important long-term technical support the past few weeks, the door is now open for additional losses.  In fact, I wouldn’t be one bit surprised to see the yellow metal trading at $1,000 an ounce before this year is done.

Here’s a gold chart…

gold73115

Clearly, the tide has turned sharply in favor of gold market bears in recent weeks.  The metal is down 7.8% in the past month, which puts it 16% lower over the past year.

But here’s the deal…

I wouldn’t be surprised to see a snap back rally for gold and gold miners in coming days.  Since these markets are drastically oversold from a short-term technical standpoint, the odds favor some degree of relief rally.

How do you capitalize on this situation?

If you’re quick, you may be able to catch a few points on the looming upturn.  You could not only buy the aforementioned $GDX, but you can also catch some upside with the ETFs listed here.

However, don’t fall in love with your long positions…

Once gold and gold miners work off their current oversold condition, bears will likely send these markets to new yearly lows. 

Keep in mind, earlier this week the Federal Reserve confirmed they’ll likely start raising interest rates soon.  Of course, rising rates is bad news for gold, which offers no yield.

Trade accordingly. 

Until Next Time,

Justin Bennett

Commodity Trading Research

***Editor’s Note*** Subscribers to the Options Profit Pipeline just scored a swift 100% gain in SPDR Gold Trust $GLD puts.  When the yellow metal broke below $1,150 earlier this month, we jumped on the opportunity to profit.  If you’d like to discover how to collect quick option gains on commodities and the companies producing them, click here.

BIO:  Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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