It might feel like an eternity since physically-backed gold exchange traded funds and gold and silver miners ETFs were impressing investors, but the reality is those good times were seen in the early stages of 2014.
The past six months have been a different, more dour story. Over that time, the SPDR Gold Shares (NYSEArca: GLD) has tumbled 8.3%. Miners ETFs have been much, much worse. Over that period, the Market Vectors Gold Miners ETF (NYSEArca: GDX) has plunged 19.5%, bad enough to almost be in a bear market. [What’s Happening With Miners ETFs]
The Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ), the second-largest miners ETF after GDX, has shed 25% over the past six months With statistics like that, it would appear that the path of least resistance for the miners is lower, but in what could be a replay of a scenario that started in late 2013 and persisted into the early stages of this year, sellers may be getting tired with gold miners and ETFs like GDX and GDXJ.
Last Friday, GDX surged 6% on better than double the average daily volume. GDXJ added 6.8%, also on more than double the average turnover. Some technicians see GDX’s Friday action as a possible harbinger of more near-term upside to come.
GDX “last week hit its Fibonacci 161% extension level and in doing so, looks to have created a bullish wick at this potential support level,” said Chris Kimble of Kimble Charting Solutions.
Chart Courtesy: Kimble Charting Solutions
The bullish action in GDX and GDXJ could not come at a better time. Over the past month, four of the 12 worst-performing exchange traded products are miners ETFs, a quartet that includes GDX and GDXJ.
Miners have been chastened by falling gold prices, declines that have highlighted rising debt levels on the balance sheets of firms found throughout GDX and GDXJ.
Things are likely to get worse for the miners if gold violates $1,100 per ounce. As RBC notes, some companies, including some found in GDX, can survive an environment in which gold labors around $1,200 per ounce, but the $1,100 area is where some miners will be pinched. [Problems Mount for Miners ETFs]
Still, the odds look good that miners will continue to move higher after last Friday’s pop.
“Gold Miners ETF GDX looks to have created a bullish falling wedge pattern, which results in higher prices around 65% of the time. Another potential positive for GDX is that this pattern is taking place at the bottom of this multi-year falling channel with momentum oversold. Bullish wicks have taken place the past two weeks as well,” said Kimble.
Chart Courtesy: Kimble Charting Solutions
Tom Lydon’s clients own shares of GLD.