Last week, we wrote about the Near Perfect Setup in gold stocks but that a correction or pause was likely before a sustainable breakout.
Gold closed the week at $2900 after trading as high as $2968. It has measured upside targets of $3000 and $3050.
It is overbought, which is a long-term positive, but can be a short-term negative.
Gold is a little extended from the average of the four best cyclical moves. It could move sideways for over four months and still maintain the average line.
The average reveals that the two points of acceleration are in July 2025 and January 2026.
The gold stocks have rallied up to important, multi-year resistance.
That includes seniors and large caps (GDX, XAU), mid-tiers (GDXJ), and juniors (GOEX).
A pause or correction is a reasonable outcome and does not do anything to change the larger technical setup, which is very bullish.
Short-term breadth indicators for GDX and the HUI reached extreme overbought readings while medium to intermediate term breadth indicators remain at healthy levels.
We plot GDX below and a number of breadth indicators.
On Thursday, 94% of HUI stocks (similar to GDX, excluding royalty companies) closed above the 20-day and 50-day moving averages, while 73% closed above the 200-day moving average.
The other breadth indicators (new 52-week Highs, Golden Cross, and Bullish Percentage Index) have more room to move before indicating the threat of a significant correction.
On Thursday, 100% of the Top 33 stocks in GDXJ closed above the 20-day moving average, while 95% closed above the 50-day moving average. That is a short-term extreme.
The 20-day exponential moving average of new 52-week highs and the percentage of those Top 33 stocks above the 200-day moving average are not at extreme levels.
The big picture remains very bullish for precious metals.
Gold is following a bullish path, and gold stocks have the potential for a significant breakout. While breadth and sentiment are growing more bullish, they are not yet at the extreme levels that would cause a significant correction.
However, the risk of a pause or a short-term correction is rising.
Gold is overbought, and gold stocks are testing multi-year resistance. As of Thursday, short-term breadth indicators were extremely overbought.
Whether a correction materializes or sector momentum continues, it is best to focus on individual companies and identify the best values. It's another way to sidestep corrections.
We are already positioned in the leading companies but are actively uncovering more companies that could lead the next move higher.
