When Will GDX Break-out?

 - Jordan Roy-Byrne CMT, MFTA

If you follow our work, you are aware of our growing optimism on gold stocks in 2020.

As we’ve written, the fundamental setup in 2020 should be bullish for precious metals.

Meanwhile, the technical setup for gold stocks is one of the best we’ve ever seen. 

Gold stocks (and GDX specifically) are consolidating in a bullish fashion within a nearly 7-year long base that, if broken, will give way to an explosive, impulsive advance. That would usher in increasing speculation, and most everything (including the turds) will fly. 

The question is when will that move begin, and when will GDX (and GDXJ) break to the upside from those bullish bases?

The recent move was expected as a shift in Fed policy from hikes to cuts has almost always produced substantial gains in the gold stocks. A resumption of rate cuts or rising energy prices that trigger an increase in inflation expectations could be the reason for the next move.

That aside, I have a market-based answer.

GDX (and GDXJ) will begin the move that leads to a breakout when the correction in the metals is over.

We plot the daily bar charts of Gold and Silver below.

Gold has a strong confluence of support in the $1410-$1415 area which includes the 38% retracement from the 2018 low, the 50% retracement from the May 2019 low, and the 200-day moving average ($1408 and rising). 

Silver has a strong confluence of support around $16.00, which has been a key level for four years. Its 200-day moving average sits at $16.24 and the 62% retracement from its 2018 low is slightly above $16.00. 

If the metals trade down to those targets, then the miners, which appear to be in a bullish consolidation or correction, will not break resistance as depicted in the chart below.

Until the miners break above their December highs on a weekly basis, then we can assume that the sector remains in correction mode. 

It would be ideal to see the metals test those targets (shaking out speculative longs in Gold especially), and then miners break above their December highs.

In any case, do not wait for the move to a breakout before buying. Get positioned soon by buying quality juniors on weakness. 

We continue to focus on identifying and accumulation the juniors with significant upside potential in 2020.

Jordan Roy-Byrne CMT, MFTA