We have been reiterating our viewpoint that the 2016 rally did not introduce a new bull market. On the contrary, the breathtaking rally of the first months of the year stalled exactly at secular resistance, suggesting the gold bear market was still intact in 2016.
On Thursday we got another confirmation of that viewpoint with a significant gold miners crash.
Interestingly, although mainstream media has been very vocal about gold’s rally earlier this year, there was a unanimous silence about the crash in gold miners. The only exception was an article on Nasdaq.com, which pointed out that the gold miners crash was a retracement to the 200 day moving average (in the case of junior miners). The fact that ‘nobody’ is writing about the gold miner crash suggests there is more downside potential.
Similar to gold miners, we kept on believing that gold itself is still in a bear market with a bearish gold price forecast for 2017 purely based on chart analysis and sentiment. Gold did not manage to break above its long term downtrend (represented by its secular downtrend line).
As gold miners lead the precious metal space higher in the first months of the year, we now see the opposite direction. We keep on believing that the most likely scenario is that gold will move to a major bottom in 2017, and our belief will be confirmed if gold drops below $1250 in the coming weeks. Gold miners have been hinting towards that scenario today.
The Market Vectors Gold Miners ETF (NYSE:GDX), which is the largest fund tracking gold stocks, was falling again in premarket trading Friday, down $0.10 (-0.44%) to $22.65 per share. Year-to-date, the GDX has gained 65.82%, but is now more than 28% off its yearly highs.
Meanwhile, the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ), which tracks mid- and small-cap mining stocks, was down $0.14 (-0.38%) to $37.11 in early Friday trading. GDXJ has still gained 93.91% since the start of the year, remaining one of the very best performing non-leveraged exchange traded funds of 2016 — although the fund is now 29% off its highs.
Investors looking for further options in the gold mining sector should consult our Precious Metals ETFs page, which contains dozens of additional funds focused on gold and silver, including inverse (bearish) ETFs that might prove useful in the current environment.
This article is brought to you courtesy of Investing Haven.