Home Business News GDX is lagging GLD which could be a problem for gold

GDX is lagging GLD which could be a problem for gold

20th Mar 24 1:06 pm

While Gold has broken out to a fresh all-time high in 2024, gold mining stocks—summarized by the VanEck Gold Miners ETF (GDX)—have a distinctly different look. Gold stocks are weak compared to the strength of gold.

While gold has been on an uptrend since late 2022, an uptrend is not evident in the gold miners and it could be argued that GDX has formed a short-term topping pattern.

Gold has eclipsed its 2020 high, while GDX is 33% below its 2020 high.

Cory Mitchell, an analyst with Trading.biz said, “The miners, exemplified by the ETF GDX, are still unloved at the moment, despite the rally in gold. GDX is in a choppy multi-year downtrend.

“Since 2023 the selling has slowed but rallies still quickly fail and give the gains right back. For GDX to start building an uptrend it will need to start building higher swing highs and lows. That isn’t happening yet; once it does that is the better time to get involved.”

While the uptrend in gold can be traded using the SPDR Gold Trust ETF (GLD), futures contracts, or even leveraged ETFs, gold mining stocks (GDX) generally move more in percentage terms and also provide insight into the strength of the gold rally.

GDX tends to move two to five times as much as GLD. This makes GDX attractive for trading because if gold is going up, then GDX may move four or five times as much as gold does. The flip side is that the declines are also more severe.

  • While the SPDR Gold Trust (GLD) fell as much as 22.5% between 2020 and 2022, GDX fell 51.9%. Gold has recovered that decline, while GDX hasn’t.
  • During the 2020 rally, GLD went up as much as 43% while GDX rallied 182%.

While GDX and GLD move different amounts, they generally move together for the bulk of big up-and-down moves.

GDX moving up with gold helps confirm that investors are interested in the space, both in gold and the miners. Right now that isn’t happening. There is some interest in gold, but that interest hasn’t spread to the miners. Investors are still apprehensive to buy, which does cast some doubt on how far gold can rally without GDX confirming.

While it is certainly possible for gold to rally without GDX it is pretty rare, and in the strongest gold rallies, GDX often leads some of the times, making higher swing highs and higher swing lows before gold. Then when GDX starts to weaken and fails to make higher highs, or makes lower lows, that can often foreshadow gold moving lower.

The mining stocks are more speculative, so they are more sensitive to market sentiment. Rallying more, and often quicker than gold in good times, and turning quicker and more severely when the bullishness dries up.

This could be a time when GLD rallies without GLD, or maybe GDX will start moving up with GLD at some point. Or, history could also be telling us something—if GDX isn’t confirming and heading lower, that could foreshadow what GLD will do next.

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