I haven’t had much to say about mining stocks the past few weeks as they have been faltering with the price of gold, as it fell below $1750 on Tuesday and I am not one to try to predict future bottoms, but to instead look for signs that a bottom is on hand before saying much.
The stock market also took a hit on Tuesday, as bonds yields went up. The morning had news of Jerome Powell admitting that inflation is not going away. To me the action in the markets has a bit of a flavor to 2018 in them. In that year, if you can recall, there were fears in the fourth quarter of a more hawkish Fed. Gold fell in August and then began to rally in September just as the stock market tipped over and fell 20%. The day before Christmas Eve 2020, the Fed switched gears and went back into easy money mode.
To me the similarity is that we have been seeing weakness in the price of gold over the past few months going into a coming QE reduction. I’m not sure if the stock market is really ready to tip down into a new downtrend yet or not. That might be more clear in a few days and I’m hopeful of another market rally next month into earnings, with the market holding into New Years.
What I am seeing now is finally signs of a bottom in gold stocks.
The GDX finished the day red, but most large cap mining stocks were up while gold closed down about $17. When you see a positive divergence between big cap mining stocks and gold you see signs of a bottom being put in.
For instance take a look at NEM.
NEM went up while gold went down. So did Barrick.
The GDX was down 1%.
Some mining stocks were down, despite the rally in NEM and GOLD, but the GDX was most heavily hit by a decline in AEM and KL, which announced that they were merging together in a massive mining deal.
I own NEM, GOLD, AEM, and KL.
This is not to say that gold stocks are going to go straight up, but we probably have now seen most of the downside in them and it looks like a bottoming process is now starting.
I can’t predict exact future price action, which is I why I primarily use a rebalancing strategy to buy some on dips and sell a little on rallies. I explained this strategy in a post back in August you can find here. With this strategy buying some now makes sense.
It’s worth noting that my top small cap stock pick for this month is a gold stock that has held up very well relative to the sector. You can find my post on it here.
-Mike
