Volume is a favored tool by traders and technical analysts when looking to confirm breakouts or breakdowns in a security.
With that in mind, recent increases in the volume of the Market Vectors Gold Miners ETF’s (NYSEArca: GDX), the largest gold miners exchange traded fund, could be a sign of more upside to come for the already high-flying fund.
“This surprising buy-like-crazy-on-gold-stock-rallies trend continued since GDX plumbed its latest major low in mid-December. As gold stocks recovered in the 7 weeks since, GDX capital volume just soared. And it’s really at incredible levels these days. In January 2015, GDX capital volume averaged $1.2b per day. That’s considerably higher than August 2011’s $0.9b, which was heading into GDX’s record high,” writes Adam Hamilton in a post on Seeking Alpha.
Prior to Friday when it sank 5.5% on heavy volume, there had ample enthusiasm for GDX and rival gold miners ETFs this year. Even with those Friday woes, fiver gold miners ETFs, including GDX and its small-cap counterpart, the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ), rank among the top 10 non-leveraged ETFs year-to-date. [Bad Time for Gold ETFs]
“While GDX’s capital-volume chart is very encouraging, GDXJ’s is just shocking. It offers the most conclusive evidence I’ve yet seen that gold stocks as a sector have decisively bottomed, with a major new upleg underway as sentiment starts to shift,” adds Hamilton.
Some investors are buying into the notion of more upside for gold miners ETFs. For example, GDX has hauled in $885.4 million in new assets this year, one of the best totals among all sector ETFs. Investors have poured almost $226 million into GDXJ. [Bullish View on Gold Miners]
The impact of lower fuel prices for gold miners should not be overlooked. Miners are also benefiting from lower oil prices. Barrick Gold (NYSE: ABX), the world’s largest gold miner and the second-largest holding in GDX at 8.1% of GDX’s weight, could save up to $25 per ounce of gold produced thanks to lower diesel prices, according to Bullion Vault.
GDX is the second-most heavily traded U.S.-listed ETF, trailing only the SPDR S&P 500 ETF (NYSEArca: SPY). Only 14 ETFs, including SPY and GDX, have heavier average volume than GDXJ.
Market Vectors Gold Miners ETF