Gold Stocks: History Argues for More Upside
Judging from history, one should not be alarmed about the recent gains because these rebounds tend to run much longer and higher.
Next we chart Market Vectors Gold Miners ETF (GDX), Market Vectors Junior Gold Miners ETF (GDXJ) and Global X Silver Miners ETF (SIL). In recent days these markets achieved significant breakouts on ‘gap up’ moves. Monday’s action is a strong signal that these markets could fill their open gaps (see circles) and then retest previous resistance which is now support. GDX is very comparable to the HUI. The initial rebound target for the HUI (558) is equivalent to GDX $57. Furthermore, $57 is the 62% retracement (from the 2011 high to 2012 low) and the target from the length of the W bottoming pattern ($48-$39 = $9, $9+$48=$57).
While gold and silver equities have had a strong run, they have only broken out from their multi-month bottoming patterns. A retreat and fill of the gaps would alleviate the current overbought condition, temper sentiment a bit, and facilitate another strong leg higher. Moreover, judging from history, this rebound still carries substantial upside potential in the coming months. Traders and investors should look to take advantage if the miners fill their gaps and retest the breakout.
Editor's Note: See more from Jordan Roy-Byrne at The Daily Gold.
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