Miners Continue to Diverge from Crashing GoldFriday December 09, 2016 14:36
As the gold price continues to plummet, GDX, the ETF for large-cap miners has managed to hold the key $20 level. Gold was falling towards $1,200 on Nov. 14 as GDX tested the strong support area of 20 and held.
Interestingly, as gold continued to sell off down to the $1170 level at month end, this strong GDX support continued to hold on declining volume and the gold miners are now trying to carve out a bottom into today’s Non-farm Payrolls report.
The miners are sending strong signals here of being sold out as tax-loss selling winds down and we enter a seasonally strong month for physical bullion buying. The Gold Miners Bullish Percentage Index ($BPGDM), a breadth indicator hit 7% this week and is now levelling off at the 10% level as gold hit $1160 on December 1st. This indicates a heavy, oversold condition.
The huge move off of the bear market low in January of this year began with a higher percentage of miner bulls as I am hard pressed to find a single bull here. I believe this is a very low risk entry point to start taking long term positions in quality miners as we have gone from a euphoric record 100% bulls in July, down below 10% bulls in late November. Gold went from a must have asset to “sell it all at any cost and buy more equities” in less than four months!
I had been warning in previous posts that we needed to see a test of the 20 level, or a weekly close above the 26 level in the GDX before I would be comfortable calling a bottom in the miners. Now that we have held this level on a weekly and monthly basis close, then tested it with gold falling further to $1160, I have been buying miners on my watch list as I feel this is a very low risk entry area for long term positions.
David Erfle is a 52 year old self-taught mining sector investor. He stumbled upon the mining sector in 2003 as he was looking to invest into a growing sector of the market. After researching the gains made from the 2001 bottom in the tiny gold and silver sector he became fascinated with this niche market. So much so that in 2005 he decided to sell his home and invest the entire proceeds from the sale into junior mining companies. When his account had tripled by September, 2007, he decided to quit his job as the Telecommunications Equipment Buyer at UCLA and make investing in this sector his full time job. He personally survived two bear markets, witnessed incredible sector changes and had to alter his investment philosophy numerous times in order to adapt to changing market conditions."