Adam Hamilton - Zeal Intelligence | July 12, 2024 |
The gold miners’ stocks are surging again, breaking out from recent months’ consolidation. This strong mid-summer price action is confirming their interrupted upleg is still growing. It should have a long way to run yet, with gold stocks still quite undervalued relative to gold. With gold’s fundamentals remaining very bullish and its miners soon reporting their best quarterly results on record, this breakout should accelerate.....................................................
They’re still coming once this dangerous AI stock bubbleinevitably deflates sufficiently to free them from its enchantment. American stock investors’ gold investment can be measured with the combined bullion holdings of the world-dominating GLD and IAU gold ETFs. Astoundingly during gold’s 33.2% upleg so far, GLD+IAU holdings fell 4.5% or 57.4 metric tons! American stock investors have been selling during it.
This is an extreme and unsustainable anomaly, unprecedented in this modern gold-ETF era! Today’s gold upleg is its biggest by far and the first to achieve new-record-high streaks since a pair both peaking in 2020. New record highs are important as they spawn self-feeding momentum buying. The more records gold attains the more the financial media reports on it, building awareness to drive more capital inflows.
This record-chasing dynamic ultimately grew 2020’s gold uplegs to monster 42.7% and 40.0% gains! Those were mostly driven by American stock investors flooding into GLD and IAU shares. Their holdings soared an enormous 30.4% or 314.2t during the first, then an even-bigger 35.3% or 460.5t during the second! It is amazing today’s gold upleg has already grown to 33.2% despite that 57.4t GLD+IAU-holdings draw.
Chinese investors and central banks have taken the lead this time, with massive gold-bullion buying that has overpowered American stock investors’ stunning apathy. But sooner or later all these gold records will attract back the latter, who have colossal mean-reversion buying to do. That should easily catapult today’s gold upleg well over monster 40% gains. But even at 40%, GDX should power 80% to 120% higher.
That implies GDX targets between about $46.75 to $57.00, another 26% to 54% above mid-week levels! And such gains are right in line with sector precedent. GDX averaged excellent 105.4% gains during gold’s monster 40%+ 2020 uplegs! And again gold-stock upside targets rise proportionally the higher gold’s upleg extends over 40% gains. Also these levels are conservative given today’s uniquely-bullish scenario.
Gold stocks’ upside leverage to their metal tends to mount the longer gold uplegs last. Herd sentiment continues to shift more bullish, attracting in more traders. Their buying accelerates gold-stock uplegs, ramping interest and convincing more traders to chase big gains. That fuels powerful virtuous circles of buying begetting buying. GDX amplified gold’s last record-achieving upleg in mid-2020 by a great 3.4x!
Many gold stocks also remain considerably undervalued fundamentally, with stock prices nowhere near reflecting the fat profits generated by record and near-record gold levels. Our best-performing new gold-stock trade since late June was sporting a dirt-cheap 9.9x trailing-twelve-month price-to-earnings ratio when we added it! Great valuation bargains still abound in this long-neglected small contrarian sector.
Those upcoming record Q2 results ought to work wonders for gold-stock awareness among professional investors and fund managers. Since most traders don’t follow this sector, the colossal profits growth will surprise them. As gold stocks blast higher on huge earnings, more traders will take notice and join in the buying. An epic earnings season combined with gold surging back to more record highs is incredibly potent!
So despite gold stocks’ upleg so far, the majority of their gains are almost certainly still coming. While it was better to buy in lower in recent months like our newsletter subscribers did, it isn’t too late to deploy capital in gold stocks. We’ve long preferred and specialized in smaller fundamentally-superior mid-tier and junior gold miners. They are better able to consistently grow their production from smaller bases.
Their market capitalizations are also much lower than the majors’ dominating GDX. That makes it much easier for capital inflows to bid up their stock prices faster and higher. Smaller gold miners outperform the larger ones during gold uplegs. Our newsletter trading books are currently full of excellent ones with big upside potential trouncing GDX’s. Traders should get deployed before the herd really starts chasing gold stocks!
The bottom line is gold stocks are breaking out. After successfully weathering the summer doldrums with a minor selloff, they’ve surged dramatically in July. Mid-week GDX was challenging its latest mid-May high, and either just achieved or soon will a decisive breakout beyond it. That confirms this upleg is alive and well, gold stocks off to the races again. Their upside potential remains massive despite recent upleg gains.
Gold’s own fundamentals are still very bullish, with American stock investors not yet chasing gold’s mighty upleg. But they will return as gold increasingly catches their attention. Meanwhile gold stocks are quite undervalued relative to today’s gold levels, let alone where it is heading. And the gold miners are on the verge of reporting their best quarterly results on record, which should attract professional investors to this sector.
https://www.mining.com/web/gold-stocks-breaking-out/