One of the few sectors within the stock market now sustaining
sizable losses are gold mining stocks (NYSEARCA:GDX). The sector
has lost more than 30% over the past year and is already down over
24% since the beginning of 2013. Meanwhile the total world stock
market (NYSEARCA:VT) has gained 9.13% that same one-year time
Is the sharp downturn in mining stocks a sneak preview of
significant losses ahead in precious metals?
A closer look at gold mining stocks versus gold (NYSEARCA:GLD)
shows a serious breakdown in correlations. Since March 2012, GDX
has lagged GLD by an incredible 35% and change. Market dislocations
like this can last months and sometimes years, but they never last
forever. Will GLD follow GDX down the tubes?
In our Weekly ETF Pick from Feb.14 we wrote:
"Despite a modestly rising stock market, the Market Vectors
Gold Miners (
) has lagged both the broader U.S. stock market along with the
SPDR Gold Shares (
) by a very significant margin. At present, GDX trades around
$41.50 and is well below both its 50 ($44.41) and 200 ($46.06)
day moving average. Buy the Direxion Daily Gold Miners Bear 3x
) at these levels."
Since then, GDX has slid 13% and our Feb.14 DUST trade resulted
in a +29% gain. Instead of cooling off, the slide in mining stocks
has intensified. DUST aims for triple inverse daily performance to
miners and will appreciate when they decline.
For investors/traders weary of leveraged ETFs, we also gave a
paired bearish trade in the Feb.14 alert using GDX put options.
This trade has already doubled by gaining 150% and a triple could
be ahead. Since we're still long the position, the exact GDX strike
price and monthly expiration is only available to subscribers.
In reality, gold's 12th consecutive yearly gain has been masked
by underlying weakness.
Over the past year, GLD has lost -8.5% and the only real
strength in the precious metals sector has been with tinier markets
like platinum (NYSEARCA:PPLT) and palladium (NYSEARCA:PALL). The
next move in gold may be an unpleasant surprise for permabulls.
Although buying goldon the dips has worked like a charm in the
past, history isn't prologue for the future. And with GLD posting
-8.5% one-year losses, the pain in gold prices might not be over.
What are the key support/resistance levels in gold - that if
violated, could trigger panic selling? What are ways to hedge
against this possibility?
ETF Profit Strategy Newsletter
uses technical and fundamental analysis to evaluate price movements
and opportunities in ETFs linked to stocks, bonds, and gold.
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