After being arguably overused decades for decades, the old Wall Street adage about blood in the streets being a buy signal still has practical application in today’s financial markets.
That could be what some eager gold bugs are hoping for. Following a brutal year for bullion in 2013 and an even worse year for gold miners, those bullish on the yellow metal and the companies that extract it from the earth may have something to hang their hats on.
Buying last year’s losers, including the Market Vectors Gold Miners ETF (NYSEArca: GDX), was extolled as a good idea by some in late 2013. The advice is paying off as the $6.9 billion GDX, the largest gold mining ETF by assets, is up 4.5% in just the past week. [Friend Fear With ETFs]
That could be just the beginning for an ETF that plunged 54% last year, a drop that was nearly twice as bad as the losses incurred by the major ETFs backed by holdings of physical gold. Technical analyst Chris Kimble of Kimble Charting Solutions says the current scenario for the miners “is a rare scenario.”
“It is interesting how much things have changed in just two calendar years for gold,” said Kimble in an interview with ETF Trends.
Kimble notes the momentum on the PHLX Gold/Silver Sector Index (^XAU) is more oversold than it has been at any time over the past 30 years.
“On a monthly basis, XAU and HUI, the NYSE Arca Gold Bugs Index (^HUI) are at 10-15 year support,” said Kimble. “From a risk/reward standpoint, you can only dream of this.”
Chart Courtesy: Kimble Charting Solutions
GDX does not track the Gold Bugs Index. Rather, the ETF tracks the NYSE Arca Gold Miners Index (GDM), a modified market capitalization-weighted index that combines 36 large-, mid- and small-cap companies. Top holdings in GDX include Barrick Gold (NYSE: ABX), Goldcorp (NYSE: GG), Newmont Mining (NYSE: NEM) and Silver Wheaton (NYSE: SLW).
Charts from Kimble below illustrate encouraging technical patterns in ABX and Silver Wheaton. That is good news for GDX because Barrick and Silver Wheaton are the ETF’s largest and fourth-largest holdings, respectively, combining for 19.3% of the fund’s weight.
Noting that some investors are emotional about gold and the miners, Kimble said he isn’t trying “to be a zealot one way or the other,” but added that “it’s intriguing to do the bottom-fishing with something that has done terribly over the past three years.”
That is the case with GDX. The fund has plunged almost 61% over the past 36 months, and some investors are attached to the ETF as it was inflow positive last year even as physically-backed gold funds bled assets. [Miners Buck Gold Outflow Trend]
Despite the success in 2014, investors have pulled almost $217 million from GDX.
The outflows may not mean much. Not with once-a-generation sentiment applicable to miners and the group being anointed by some as the ultimate rebound trade for 2014. Paraphrasing Sir John Templeton, Kimble said “Bull markets are born in pessimism and die in euphoria. I love scouring those stages.” With GDX, perhaps other market participants are already embracing the pessimism.