Gold is definitely story of 2016, at least so far. The yellow metal rose some 25% in the first quarter. That rally was impressive, but the performance of precious metals miners was even better, as the rally of most gold miners surpassed 100% in 2016. Incredible.

Is this the time to enter the gold mining space or stay on the sidelines?

Logically, after such a gold miners rally, every investor would argue that it is recommended to wait for a better entry point. However, that is a logic conclusion in theory, but it is very hard to accomplish in reality, as investors can easily get caught up in the frenzy of the market and the news stream like Bloomberg’s latest article on gold miners. In other words, emotions could lead investors to chase prices higher. That is called FOMO: Fear Of Missing Out.

The daily chart of the GDX mining index ETF, showing short term trends, tells us that this is not the time to become overly enthusiastic. The gold miners rally surpassed the June 2015 high, but a retracement started today. The market should do its work now, and investors should be patient.

Moreover, the weekly GDX ETF chart brings up an additional insight. Gold miners have reached a HUGE resistance level as seen on the next chart (red rectangle). That resistance level coincides with the consolidation area which started right after the collapse of 2013 and lasted until 2015. This is a resistance zone that should not be taken light right after a 100% rally in the last 3 months.

An additional data point which confirms the above observations is the outflow from the GDX ETF. According to Sentimentrader, “money has been leaving the gold miners. Through the week ended Tuesday, more than $300 million had been pulled from GDX despite a gain of more than 13%. There have been a few times that it lost more than $100 million in assets over a week that it gain more than 10% (2009-05-22, 2013-04-23, 2013-07-22, 2013-08-12, 2015-10-08 and 2016-02-04). They mostly led to gains over the next 1-2 weeks but losses over the next 1-3 months.”

In other words, this is not the time to enter the gold mining arena, but rather watch how the retracement unfolds. According to the pattern of the retracement, an entry point should be defined (or not).

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Analyst Team
The team has +15 years of experience in global markets. Their methodology is unique and effective, yet easy to understand; it is based on chart analysis combined with intermarket / fundamental / sentiment analysis. The work of the team appeared on major financial outlets like FinancialSense, SeekingAlpha, MarketWatch, ...

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