Key points:
- Short-term dual trend buy signals for gold miners surged
- Similar shifts saw a gold mining index rally 100% of the time over five months
- GDX, GDXJ, and SIL, gold and silver mining ETFs shifted to a bullish status
Momentum continues to build in gold miners
Evidence of a bullish shift in gold miners strengthened this week as the percentage of stocks on a bullish short-term Dual Trend signal surged above 50%. The move indicates that a growing proportion of miners are displaying favorable absolute and relative trends.
To capture breadth thrusts for gold miners, our system identifies when the percentage of stocks on a short-term buy signal moves from below 10% to above 50% in fewer than 15 sessions after the NYSE Gold BUGS Index had fallen to a six-month low. This combination points to a significant reversal from depressed price levels.
Over the subsequent five- and six-month periods, the NYSE Gold BUGS Index rallied 100% of the time, although the gain in 2014 was fairly modest. More importantly, both horizons produced statistically significant results.
During the favorable six-month window, gold miners posted a maximum gain of more than 10% on 10 occasions, compared with just three instances of a loss of similar magnitude, pointing to a favorable risk/reward profile.
On Monday, the gold miners ETF (GDX) shifted back to a bullish short-term Dual Trend signal. With GDX extending its rally this morning, the long-term trend composite has risen to 60%, while the relative composite stands at 40%, a notable improvement from its recent 0% reading.
The junior gold miners ETF (GDXJ) also shifted to a bullish profile on Monday, signaling improving trends among the higher-risk segments of the gold-mining space.
The silver mining ETF (SIL) triggered a short-term buy signal on Tuesday, while its long-term composites are also showing signs of improvement, similar to the gold mining ETFs.
The following table presents our rankings of gold mining stocks. Centerra Gold, the top-ranked stock, was added to the Dual Trend portfolio last week. We would also note that two additional names, Skeena Resources and SSR Mining, shifted to bullish long-term signals on Tuesday.
Since spot gold bottomed on July 16, the three best-performing stocks have all been junior miners, which tend to exhibit the greatest upside during gold rallies given their higher beta and more speculative nature. Notably, stocks that currently maintain a short-term Dual Trend buy signal have generated a median return of 31.65% since gold bottomed, well ahead of the 23.05% median return for stocks with a bearish signal.
What the research tells us…
A surge in short-term Dual Trend buy signals among gold miners provides further evidence that the group is undergoing a bullish transition, with an increasing percentage of stocks exhibiting favorable absolute and relative trends. Historically, similar breadth thrusts have been followed by gains in the gold mining index 100% of the time over the subsequent five- and six-month periods. With additional evidence supporting a shift from bearish to bullish conditions, we plan to increase our exposure to gold miners strategically.
