Gold, miners golden crosses

Golden crosses occur when those faster 50dmas cross back above the slower 200dmas from below. The latest specimen just triggered in gold last Friday January 13th. Then one trading day later on Tuesday the 17th, gold stocks’ own golden cross flashed in their leading benchmark GDX VanEck Gold Miners ETF. These strong technical buy signals are big deals, ramping traders’ confidence in these young uplegs.

Technical analysis works because enough traders pay attention to charts and trends, influencing their psychology and thus buy-and-sell decisions. Those price-action-influenced trades amplify and extend underlying trends, attracting in still more traders. These latest golden crosses in both gold and its miners’ stocks should accelerate sector capital inflows. The more that drives up prices, the more traders want to buy.

Since golden crosses are so influential, they are also factored into countless funds’ trading models and algorithms. Their flashing, especially after serious lows, is a strong green light for professional money managers to buy and chase gains. So all speculators and investors should pay attention when golden crosses flare. This essay’s charts illuminate these latest powerful buy signals in gold and GDX in turn.

Gold’s new Golden Cross is crystal-clear here, its faster-moving 50dma crossing back above its slower-moving 200dma late last week. Gold’s young upleg has already surged 18.2% higher over 3.6 months at best, a great start. That ignited out of deep stock-panic-grade lows in late September, which resulted from massive gold-futures selling as the US dollar soared parabolic on the most-extreme Fed tightening ever.

What precedes golden crosses is very important for their efficacy. In sideways-consolidating markets, golden crosses aren’t uncommon. Between mid-2021 to early 2022, gold’s 50dma migrated back over its 200dma several times. Those golden crosses alternated with opposing Death Crosses, bearish indicators occurring when 50dmas fall back under 200dmas from above. None of these are meaningful in grinding markets.

The potency and predictive reliability of golden crosses and death crosses grows proportionally with the distance 50dmas are stretched from 200dmas before they converge again. Late September’s $1,623 closing gold low proved the yellow metal’s worst level in 2.5 years, since just emerging from March 2020’s brutal pandemic-lockdown stock panic! Gold was extremely oversold there, trading at just 0.889x its 200dma.

Dividing prices by their 200-day moving averages and charting the resulting multiples creates a great technical trading tool I call Relativity. It shows when prices are relatively-low or relatively-high, ideal times to buy low and sell high respectively. In late September gold hadn’t been lower compared to its baseline 200dma, meaning more oversold, since late December 2016! Even the stock-panic nadir was much better.

In mid-March 2020 after cratering 12.1% in just eight trading days on another monster US-dollar spike, that rGold trading indicator never went below 0.984x. So this latest deep gold low proved both secular and exceptional, both absolutely and relative to gold’s 200dma. The more extreme a low prior to a golden cross triggering, the better the odds it is signaling a major upleg underway that has still has big room to run.

Case in point was gold’s previous major-low golden cross, which flashed in late January 2019. That was early in a massive upleg that ultimately blasted 42.7% higher in 18.8 months! That was interrupted by the anomalous March-2020 stock panic. But right after that, another mighty upleg erupted where gold soared up another 40.0% in just 4.6 months! Major-low golden crosses are the real deal, due to a core market truth.

After being forced to extremes either way, prices have a powerful tendency to mean revert the opposite direction and overshoot proportionally. Market extremes are never sustainable for long, because they are driven by fleeting herd psychology. Neither the overwhelming popular greed after major surges nor the suffocating crowd fear after major plunges lasts. Those lopsided emotions are always inherently self-limiting.

By late September after gold plunged 20.9% in 6.6 months as the US dollar shot parabolic on extreme Fed rate hikes and quantitative-tightening bond selling, everybody and his dog was bearish on gold. So everyone susceptible to being scared into selling low had already fled. That exhausting selling pressure only left room for buyers, which would soon catapult gold much higher in a powerful mean-reversion V-bounce.

As a hardened contrarian speculator with decades of experience fighting the herd at extremes, I wrote about that at the time. In mid-October when gold still languished at $1,644 and bearishness remained ubiquitous, I published an essay on the gold-futures puking stalling. While generally ignored at the time like all contrarian arguments near market extremes, my mean-reversion conclusion then soon proved spot-on…

“The bottom line is speculators’ extreme gold-futures puking over this past half-year is stalling. That heavy selling responsible for these anomalously-low gold prices has exhausted these hyper-leveraged traders’ capital firepower. It has left their gold-futures positioning at unsustainable bearish extremes, with both longs and shorts stretched to levels not seen for several-plus years. That guarantees big buying is coming.”

That’s actually still true! Last week I wrote another essay analyzing why this latest upleg’s gold buying is only starting. It digs into the three-stage dynamics fueling major gold uplegs, starting with gold-futures short covering, extending to gold-futures long buying, and ultimately enticing back far-larger investment buying. Looking at underlying capital flows driving this past year’s gold action, that knowledge is essential.

So gold’s latest major-low golden cross is flashing while both gold-futures speculators and investors still have massive buying left to do. Such super-bullish fundamentals greatly strengthen probabilities that this golden cross indeed signals bigger gold gains to come. Today’s young gold upleg easily has the potential to challenge 40%+ gains again, just like those last mighty mean-reversion uplegs that both peaked in 2020.

Gold powering 40% higher off late-September’s extremely-oversold 2.5-year low would catapult it way up near $2,275! The yellow metal clawing back over $2,000 again will greatly increase traders’ enthusiasm for it, accelerating their buying. That’s the next big technical-sentimental step after gold’s breakout from its mid-2022 downtrend, breakout above its 200dma, and this past week’s major-low golden-cross buy signal.

And as goes gold, so go its miners’ stocks. Their earnings and thus stock prices leverage gold’s material price trends. Again the leading GDX gold-stock benchmark just flashed its own golden cross this week. Also like gold’s, it was a powerful major-low signal and not one of the weaker consolidation ones. That is super-bullish for gold stocks, which amplify gold’s gains. Their upside potential in coming months is huge!

GDX’s own latest Golden Cross again triggered the very next trading day after gold’s. That confirms the gold stocks’ parallel young upleg is also the real deal. GDX has already soared 49.3% higher over just 3.6 months, leveraging gold’s advance by 2.7x. That’s right in the major gold stocks’ usual 2x-to-3x range. GDX’s latest golden cross will ramp technically-oriented traders’ interest in deploying capital in this sector.

Gold-stock sentiment is overwhelmingly dependent on gold price action. So the mounting bearishness that plagued gold in mid-2022 as the US dollar skyrocketed seriously hammered gold stocks. GDX plummeted 46.5% in 5.3 months which was dreadful, but still milder 2.2x downside leverage. That left this leading gold-stock benchmark trading at just $21.87 in late September, which was a more-extreme low than gold’s.

While it too was GDX’s worst level in 2.5 years since March 2020’s pandemic-lockdown stock panic, the gold stocks were far more oversold. That panic was the most-extreme fear event of our lifetimes, early when no one knew how virulent and lethal COVID-19 was or how governments’ lockdowns would affect their economies. The US stock markets cratered 33.9% in just over a month in that unprecedented uncertainty!

GDX closed under late-September 2022’s miserable low on just four trading days in the dark heart of that panic. At worst during that blinding maelstrom of fear, GDX collapsed to radically-oversold levels at just 0.694x its 200dma. Incredibly those recent lows a few months ago rivaled that, with GDX plunging to a similar 0.703x its 200dma! The gold stocks were exceedingly oversold before this gold-stock upleg was born.

Such extreme lows greatly boost the potency of their subsequent golden cross that triggered this week. Incidentally I was also arguing the unpopular contrarian case for gold stocks at the time. Just one trading day before they bottomed in late September, I published an essay on that false gold-stock panic. Like usual fighting the herd at extremes, I got a lot of flak for my bullish mean-reversion conclusion back then…

“The bottom line is battered gold stocks are literally trading at panic levels today! They haven’t been lower or more oversold since March 2020’s pandemic-lockdown stock panic, after which they violently mean reverted massively higher. Today’s extreme lows are just as anomalous and unsustainable, based on a false premise that recent months’ big gold selloff was fundamentally-righteous. But that simply isn’t true.”

“Gold-futures speculators fled unleashing enormous selling as the US dollar soared parabolic on the Fed’s most-extreme hawkish pivot ever. That tainted gold psychology, leaving investors bearish enough to join in the selling. But all that has mostly been spent, with speculators’ gold-futures positioning and investors’ gold-ETF holdings at major multi-year lows. As all that reverses, gold will soar launching gold stocks way higher.”

With GDX up nearly 50% since, that process is clearly underway. We certainly eat our own dogfood at Zeal, all our research efforts are focused on executing profitable real-world trades. So we aggressively added crazy-oversold, deeply-undervalued, fundamentally-superior mid-tier and junior gold and silver miners’ stocks in the months surrounding GDX’s panic-grade lows, filling our trading books with great bargains.

Their unrealized gains are really mounting in this young gold-stock upleg, but the best is still yet to come. GDX’s last major-low golden cross flashed in early May 2020, soon after that March stock-panic anomaly. That was relatively early in a massive mean-reversion-overshoot upleg that would blast GDX 134.1% higher in just 4.8 months! That proved outstanding 3.4x upside leverage to gold, truly a heck of a run.

Another mighty upleg is sure likely this time around. The major gold stocks dominating GDX should have no problem easily doubling out of late-September’s brutal lows, with the gains in the smaller mid-tiers and juniors well outperforming like usual. 100% upleg gains would drive GDX up near $43.75, while a larger 150% upleg would catapult it around $54.75. The latter wouldn’t surprise me at all given gold’s awesome backdrop.

In addition to this upleg’s fueling gold buying only starting so far, we are suffering the biggest inflation super-spike since the 1970s. Gold prices have yet to reflect this raging inflation unleashed by the Fed’s epic money printing since March 2020’s stock panic. During the last two inflation super-spikes, gold prices in conservative monthly-average terms nearly tripled in the first before more than quadrupling during the second!

These latest major-low golden crosses in gold and GDX aren’t just triggering after extreme stock-panic-grade lows, guaranteeing massive mean-reversion-overshoot rallies. These golden crosses are flashing in the hottest inflationary environment in over four decades. Gold has proven the ultimate portfolio hedge during times of inflationary currency debasement for centuries if not millennia, and almost certainly will again.

While some of the easy gains off recent extreme lows have been won, the lion’s shares of these gold and gold-stock uplegs are still coming. So it isn’t too late to shift capital into significant allocations of gold and its miners’ stocks. Their prices are heading much higher in coming months and years as everyone figures this out. But contrarians buying in early ahead of the herd will reap the biggest rewards, multiplying their wealth.

The bottom line is both gold and gold stocks just flashed major Golden Cross buy signals. These came after deep stock-panic-grade lows, greatly increasing their potency and bullishness. Prices mean revert and overshoot after unsustainable extremes, making for massive uplegs. These golden crosses offer technical confirmation these young uplegs are the real deal, implying the majority of their gains are still coming.

These revered buy signals green light technically-oriented traders to increasingly chase the mounting gold and gold-stock gains. Golden crosses boost confidence in uplegs’ staying power, fueling more buying. That should drive gold and its miners’ stocks much higher in coming months, sparking powerful virtuous circles of capital inflows. The more gold and gold stocks rally, the more traders will buy accelerating those gains.

(By Adam Hamilton)