…In 11 of 13 rate cut cycles over the past 65 years gold stocks have enjoyed tremendous gains. The historical data shows an average gain of over 170% and median gain of almost 150%…[and] the market is 84% convinced that the Fed will announce a rate cut…[in] September. That would trigger a strong run into year end.
The median and average bottom around a rate cut is typically one and two months before that first rate cut and the timeline for a potential bottom in gold stocks line up well with the current technical outlook.
In the chart below we plot GDX along with the percentage of stocks that closed above the 200-day moving average (in the HUI) and the GDX advance-decline (AD) line.
- GDX is oversold on a short-term basis but remains weak.
- It’s AD line (an important breadth indicator) is showing a negative divergence.
- Gold stocks are not oversold on a 200-day basis. As you can see, 47% of the HUI (GDX sans royalty companies) closed above the 200-day moving average.
Ultimately, I’d love to see GDX bottom around $18 in August with the above mentioned 47% below 20%. A double bottom prior to a Fed rate cut in September would trigger a strong run into year end…
Editor’s Note: The above excerpts* from the original article have been edited ([ ]) and abridged (…) for the sake of clarity and brevity. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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