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Gold is Strong, the Mining Stocks Aren’t

January 14, 2020 By Cory Mitchell

On December 26 I wrote about a breakout in gold and mining stocks. I posted a list of stocks to watch for breakouts to the upside. Yet, while gold continued higher, the miners flatlined and then dropped right after. I put out a couple of trades, they popped, and then quickly failed. I got out with tiny profits (moved stop loss just above entry price), because it is a warning sign when gold is rallying and the associated stocks aren’t. GDX, the gold miner ETF, had a pretty significant fall on Jan. 8.

I am primarily interested in the gold mining stocks, because typically they participate in bigger percentage rallies than gold. The gold chart still looks good, but it is coupled by a mediocre, relatively weak, GDX chart.

  • Gold has made a higher high relative to September, GDX has not.
  • Gold is above the October 31 swing high, GDX is not.

gold verus GDX ETF

One possible bright spot is that GDX is showing some very short-term relative strength. Gold is near flat today (Jan.14) yet GDX is up 1.31%. I would need to see a couple more days like that to indicate that investors are once again interested in buying the stocks.

Therefore, my overall outlook is that gold still looks pretty good. But I don’t trade gold directly (very rarely). So I am still watching for some of the gold miners, near their 52-week highs, to break out. Until that happens I remain on the sidelines.

I have updated my watchlist as some mining stocks that were strong prior have dropped off, while others have held up well and moved toward the top of the list. The following list shows gold stocks (US and Canadian) listed by proximity to their 52-week high. I like organizing the stocks this way because gold is near it’s 52-week high so strong gold stocks should be as well.

gold stocks ranked by 52-week

Just because a stock is on this list doesn’t necessarily mean it is a good trade candidate. I like to look for specific patterns, such as a cup and handle where the price is consolidating near the 52-week high. Or the price is moving in a tight channel and could breakout soon.

Irving Resources (IRV.CN) is an example of the cup and handle pattern. A breakout above that $3.27 is important. That doesn’t mean the stock will necessarily explode higher, but it is definitely an area likely to cause a lot of activity. Ideally, I would like to see a little more contraction in the price action below $3.27, even if that means a small pullback or two. This will create a more well-defined handle. Overall though, I am not interested in buying unless the price moves above $3.27.

IRV.CN near resistance Jan 14 2020

Lundin Gold (LUG.TO), Lundin Mining (LUN.TO), and Detour Gold (DGC.TO) which are on the list above, are examples of other stocks with this type of pattern. A breakout above recent resistance could indicate the next wave to the upside.

Leagold Mining (LMC.TO) broke out of this type of pattern today. Note that the consolidation was above the prior higher. This is ok. The consolidation can be just below, at, or just above the prior high.

Wesdome Gold Mines (WDO.TO) is an example of a stock in a tight channel that could break out. Prior channel breakouts have resulted in sharp short-term pops to the upside.

WDO.TO moving in channel in larger uptrend Jan 14 2020

Newmont Goldcorp (NEM) broke out of a cup and handle in late December, and is also moving in a small channel recently. Watch that one for a breakout to the upside as well.

Final Thoughts on Gold Right Now

Things were looking great a few weeks ago, but so far the mining stocks haven’t followed through. That means caution is warranted. I will still trade breakouts in some of the strong mining names when I see them, but I will keep those trades on a tight least. That means I won’t let a profit turn into a loss. The stock runs or it doesn’t. And if it doesn’t, I get out. For whatever reason, there is still stiff selling in the miners and that needs to be respected. If the stock runs, have a profit target and stick with it, or utilize a trailing stop loss.

My main focus is the stock breakout, and GDX and gold are secondary. The chance of a successful trade increases if the whole industry is moving up, and gold is pushing higher as well. Yet as long as gold and GDX are still in overall uptrends, I will trade a breakout in a stock without GDX and gold confirming because strong stocks often move ahead these other two inputs. Also, a stock can have a life of its own, based on its own fundamentals.

By Cory Mitchell, CMT, join me on Twitter @corymitc.

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, or even more than you deposited if using leverage.