GDX: We've Run Out of Chances

I scaled into a GDX long in early November. That position was closed this morning. Still long metals long term, but I think pull backs are likely. I provide some TA thoughts on why.

I had to take small profit in my GDX trade that I’ve had on for several weeks. If you recall, I’ve been looking for a sustained breakout above $29.50 in the VanEck Gold Miners ETF (GDX) since early November. While we have had some daily closes above that level, none of them have been terribly convincing and we’ve failed to get the meaningful move up that I’ve been looking for to validate a breakout.

This isn’t terribly surprising at this point. Earlier this month, I wondered if we were running out of chances to take out $30:

Under $29 is fine this week. I don’t think we want to see under $28 though. That could be a sign that the trade isn’t working. We’re running out of chances to take $30 before another leg up.

Well, we now find GDX back under $29.50 to open the session today and I’m also seeing some general weakness in the metals that I think will put pressure on the miners for the time being.

This is the weekly chart for GDX. In the line that I’ve drawn at $29.50, we can get a sense for how frequently the ETF tests this level. Over the last 8 years or so, it would be considered unusual for GDX to breakout or breakdown on the first attempt at the level. I do think GDX will breakout above $30 and have a strong bull run in 2023. I just think it would be more wise to wait in cash for the time being. The metal itself looks to be setting up for a pullback:

Gold just made its third bearish divergence on the daily chart with higher highs in price and lower highs on RSI on December 1st, 13th, and again yesterday. At minimum, I see a back-test of the 50 day moving average - currently near $1,740. But I could conceivably even see a deeper pullback to $1,680. Personally, I think anything under $1,740 is probably a buy opportunity.

For what it’s worth, I see Silver pumping the breaks here as well having now rallied substantially from $19 to up over $24. That said, I like Silver far more than I like Gold at the moment and wouldn’t totally rule out a breakout above that yellow resistance line if Silver holds a pullback to $22 before taking another stab at the yellow line:

But like Gold, Silver has a bearish RSI divergence on the daily chart. The divergence just isn’t nearly as strong in Silver and would be easier for bulls to invalidate. There is nothing wrong with holding the miners in either Gold or Silver if you believe in them for 2023. But I don’t generally treat miners as investments - I think they’re much better trading vehicles. And I think the short term trade prospects favor bears. We could have certainly just hold GDX shares and wait out the dip, but why do that if you don’t have to?

Disclosure: I am not a financial adviser. I am not a law expert. I share what I do and why I do it for informational purposes. This blog simply reflects my personal opinions. I have exposure to equities, precious metals, cryptocurrencies, and various other alternative assets. I am staunch supporter of third-party risk minimization when applicable. Meaning, do it yourself and hold it yourself. If you don’t know how, learn. If you can’t manage your wealth yourself, talk to a professional wealth manager. Of course, please remember nobody cares about your money as much as you do.