Summary
- GDX outperformed SPX in 2019 and 2020 may see the same.
- The current rally should be concluding over the coming week or two.
- I am expecting a pullback soon, which if corrective, will set up a major rally in metals into the middle of 2020.
- This idea was discussed in more depth with members of my private investing community, The Market Pinball Wizard. Get started today »
What is truly interesting to me is that many do not realize that GDX has outperformed the SPX during 2019, as it closed the year with a return of almost 40%. And, yes, we caught that rally in 2019. Moreover, it was due to the performance of bonds and the metals complex that we were able to outperform those who take a buy-and-hold perspective in the equity market. And, even though there is still upside potential for the equity market in 2020, I think there is even more potential in the metals market.
Now, when the pundits are claiming that the metals are rising due to a “risk off” stock market on Friday, it leaves me with a strong question: REALLY? I mean, they have to ignore an entire year of outperformance of the metals mining stocks to come up with this ridiculous conclusion.
So I was quite entertained of late as I read many of the articles being published regarding gold and all the inconsistent, convoluted and sometimes contradictory “reasons” being imputed to its movement. But the articles that have struck me the most of late have been written by an author who was bullish on the metals complex during the entire decline from 2011-2015, until he turned uber-bearish in the last half of 2015, just as we were approaching the bottom. This author has been bearish on the metals complex during this entire multi-month rally, and just reiterated his bearish view at the end of this past week, right before the next spike higher in gold.
Then we have the usual suspects who try to provide us with “reasons” as to why gold has been rallying. They range from the bond market, to US debt issues, to physical demand, to the repo-market issues, and even to “money printing.” While all these folks are attempting to come up with rear-view-mirror reasons for why the market moves, this really provides no forward guidance as to expectations regarding the next likely move in the overall metals complex. And, interestingly, they have been saying the exact same things for many years no matter what the market does.
What I also find quite amusing is that so many are now claiming that the Fed’s injection of liquidity is causing this rally in the metals. How soon we forget our history. Do we not remember that the metals market collapsed right after the Fed started QE3? But, most analysts are not burdened by the facts of history. As I have said before, they are like the Foghorn Leghorn’s of the metals market.
“Don’t bother me with facts, son. I’ve already made up my mind.”
Lastly, this brings me to the expectations I saw in many investor comments this past Friday after the news out of Iraq. Many were certain that the complex was going to surge strongly based upon the news. Yet, despite the “news” of the day, I outlined an expectation to the members of The Market Pinball Wizard for GDX to pull back to the 29 region after it gapped up to the 30 region on the open. (In fact, on the prior day, I also outlined that I think we have a short-term bottom in place as GDX approached the 29 region too, which then preceded the gap up for which we were already set up).
But Friday was one of those days that clearly evidenced why one should ignore the news when trading the market. And, while it made many metals investors and traders scratch their heads when they saw GDX go negative after the major geopolitical news that was supposed to push it higher, the action made perfect sense to us based upon the structures we track. But, I digress.
In late October and in November, I began preparing my subscribers for the current rally phase we have been experiencing of late. I even penned a number of public articles outlining my expectations for the same. In fact, on November 11th, I published an article entitled “Sentiment Speaks: Gold Is Likely Approaching A Local Bottom.” As we now know, gold actually struck its recent bottom within 24 hours of that article. I then reiterated my expectations in a blog post at the end of November entitled “Buy Gold On Black Friday.” Even at that time, GLD was in the 137 region before it began its run almost 7% higher since that time.
At the time, my ideal target was the 143-145 region from the 136 region low. As of Friday, we have slightly exceeded my target, which is not unusual when dealing with strong extensions in the metals complex. In fact, we can even extend as high as the 150/51 region in this current rally before the next pullback takes shape.
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