Get Ready For A Bullish Turn In Gold Stocks!

| August 10, 2012

It’s been a tough year for gold stocks…

Numerous technical and fundamental uncertainties have gold stocks drastically underperforming major benchmarks in 2012.

Take a look…

As you can see, the AMEX Gold Bugs Index (gold line) is down 15% on the year while the S&P 500 (green line) is up just over 10%.  As you may know, the Gold Bugs index reflects the price performance of 15 major gold mining stocks.

This year’s drop in gold mining stocks has the index trading at 426.  That’s down 33% from the recent 2011 high of 638.  This staggering drop represents the second worst gold stock decline of the past decade…

Only during the 2008 financial meltdown did miners drop further than they have over the past year.  If you’ve been long a basket of gold stocks during this time, you’re likely resorting to prayer at this point.

And here’s what’s really crazy…

This big drop in miners has occurred while gold is still trading north of $1,600 an ounce.  That’s right, even though gold producers are getting great prices for the commodity they produce, their stocks are stuck in the gutter.

How can that be?

Well for starters, there are plenty of analysts who believe gold has lost its relative ‘safety’ status in the financial markets.  Maybe you remember how the ‘flight to safety’ trade sent gold rocketing to record highs of $1,900 an ounce in 2011?

But since the yellow metal has ignored Europe’s debt problems this year, bearish analysts are convinced gold’s ready to crumble.  This fear of a big gold downdraft is one of the leading factors in mining stocks’ lousy performance.

But here’s the deal…

The fear of collapse in the gold market is much ado about nothing.  In fact, I’ll go on the record saying gold prices are about to do the exact opposite of what bearish analysts predict.

You see, we’re just now entering a strong seasonal period for the yellow metal as the Indian gold buying season heats up.  What’s more, it’s highly likely global central banks are going to turn on the printing presses in the second half of the year.  I wouldn’t be surprised if China, Europe, and the US all embark on new monetary easing campaigns in coming months.

If that’s indeed the case, gold is about to turn higher.  And when it does, mining stocks will likely start playing catch up.

Now take a look at this…

I’m seeing a technical development signaling a bottoming process is already underway for gold miners…

The Market Vectors Gold Miners ETF (GDX) is a very popular ETF that holds gold mining heavyweights like Barrick Gold (ABX), Goldcorp (GG), and Newmont Mining (NEM).

As you can see in the chart above, GDX failed to make a new low in recent trading (green circles).   This, along with the fact that GDX is peeking above the long-standing technical downtrend (red line), is a bullish development for gold stocks.

If GDX can continue breaking through this hefty red resistance line, there’s a very good chance we’re witnessing a long-term bottom in gold mining stocks.

What’s the best way to profit from this exciting technical development?

Any of the three mining companies I mentioned earlier (ABX, GG, NEM) would be a good way to hitch a ride on the looming rally.

But without a doubt, the best way to play the potential breakout in mining stocks is with GDX.  The intraday liquidity, mixed with the diversification aspect, makes it the number one choice for investors who are bullish on gold mining stocks.

Make sure you take a look at it for your portfolio today!

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Until Next Time,

Justin Bennett

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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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