Gold News

Gold Miners Bear Market Worsens

Mining stock charts are getting uglier as the gold price falls...
SINCE last summer, writes Jordan Roy-Byrne at TheDailyGold, investing in the mining sector has been akin to riding a mini-roller coaster.
Gold mining stocks have seen two huge rallies, plus two sudden and sharp declines. More than a handful of individual stocks have rebounded over 200% from their lows. But nevertheless, the weakness of the metal price itself won out and is dictating the terms.
A look at the bear market analog chart illustrates the coming risks and opportunities.
This updated chart compares the current bear market for gold stocks with previous declines. The Philly Gold & Silver miners index (IndexNasdaq:XAU) is used for the current bear market. This chart helped identify the opportunity at the June 2013 and December 2013 lows.
If you believe the gold stocks have not yet bottomed, then this is the second worst bear in terms of time. There has been only one bear market worse than 70%. The chart argues that if the December low is taken out, it would be so only marginally. A 65% loss at the December 2013 low could become 67% or 68% but probably not anything worse.
Below is a weekly line chart of the Amex Gold Miner index (IndexNYSEGIS:GDM). This is one of the broadest indices for miners.
GDM has two levels of strong support which date back 20 years. GDM would have to decline 13% and 17% to test those supports. At the top, we plot the assets in the Rydex Precious Metals Fund, which have dwindled 86%. We plot in blue a rough projection only for consideration purposes.
In looking at long-term charts of miners, I find that a double bottom (seen above) is definitely possible. The risk is quite clear. Failed moves produce fast moves. The miners failed to breakout and have tumbled. The late May lows mark the next support but these points do not amount to much beyond the daily charts.
Furthermore, after $1200 per ounce, the gold price's next strong support isn't until $1080, the 50% retracement of the entire bull market. Hence, there is a growing risk of the miners falling to their December lows. Therein lies the opportunity.
Only time will tell but that point could immediately mark a shift from risk to amazing opportunity.

Jordan Roy-Byrne, CMT is a Chartered Market Technician, and a member of the Market Technicians Association. A former official contributor to world-leading futures exchange CME Group, Jordan Roy-Byrne now edits The Daily Gold website.

His work has been featured by a wide range of respected financial outlets, including Barrons , CNBC, FT Alphaville, and Yahoo Finance.

See full archive of Jordan Roy-Byrne.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals