Precious Metals Haven't Broken Out Yet But Junior Miners Are On The Move
Jordan Roy-Byrne, CMT | Jul 05, 2020 01:02AM ET
Precious Metals have not broken out. Not yet.
Gold closed the week at $1790 and Silver at $18.32. They have yet to breach critical resistance levels at $1800 and $18.75.
But the junior sector has broken out. Both the VanEck Vectors Junior Gold Miners ETF (NYSE:GDXJ) and Global X Gold Explorers ETF (NYSE:GOEX) eclipsed 7-year resistance and made new daily and weekly highs.
The senior miners have lagged in recent days. Capital is flowing downstream.
Anecdotally speaking, did you notice the moves in various individual juniors within the past two weeks?
Quality juniors and even some juniors devoid of quality and a mining-related purpose surged higher. I will spare you the names.
Some daily charts are showing that rhino-horn look. It’s the opposite of a fishing line look.
Anyway, these types of moves are an early signal of what potentially lies ahead.
GDXJ and GOEX have joined VanEck Vectors Gold Miners ETF (NYSE:GDX) in blue sky territory with limited overhead resistance and measured upside targets that are significantly higher.
The last major breakout in the precious metals sector was in the second half of 2005.
Gold stocks broke out from 8-year resistance, while Gold and Silver surpassed technical resistance in place for 20 years.
During that breakout and the furious move that followed, the parent index of GDXJ (MVIS) surged 120% in only six months.
The most significant and most consistent moves in markets occur after major bottoms and after major breakouts.
The critical difference is a major breakout leads to a new multi-year high. Optimism is already present, but the breakout solidifies that optimism, leading to increased confidence and a new round of speculation.
This sounds dangerous, but it isn’t unless the fundamentals shift and valuations are sky-high. The fundamentals of precious metals are strengthening, and valuations are hardly a concern.
With that said, the metals have not broken out yet, and the miners could experience a pullback to correct their overbought condition.
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Currently, the bullish percentage index, a breadth indicator for GDX is at 100%. Meanwhile, the percentage of GDXJ stocks trading above the 50-day and 200-day moving average is 93% and 90%.
Strength is good, but too much strength can lead to a quick pullback.
Anyway, we will make the most money by buying quality and holding. If we get a quick snapback in the juniors, then take advantage of that weakness.
This remains an excellent time to get into quality juniors with the most upside potential as the wind is at your back.
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