A Near-Perfect Setup in Gold Stocks
2025.02.10 03:11
stocks have enjoyed a strong move while Gold has climbed to $2900/oz. The various ETFs and indices have gained 20% since the end of December.
Gold is approaching measured upside targets of $3000/oz and $3050/oz, and the gold stocks are short-term overbought as they approach multi-year technical resistance.
and GDXJ data show that 87% of their stocks are above the 20-day moving average and 83% and 87% are above the 50-day moving average, respectively.
A pullback or pause could begin within a few weeks and perhaps last until the end of winter.
However, we cannot lose sight of the big picture.
The setup for gold stocks is one of the best ever.
Let’s start with the fundamentals.
The real price of Gold has surged higher in recent quarters. Gold has gained 25% in the last seven months, and cost inflation has been minimal. Margins are expanding, unlike in 2020-2022.
According to RBC and Bloomberg, miners are valued at around 8x cash flow. Based on my own research, miners have been valued anywhere from 6x to 25x cash flow since the 1970s.
There is potential for higher valuations and for margins not only to expand but also to accelerate.
The inflation-adjusted Gold price is on the cusp of breaking out of a massive 45-year base.
Why is this important? It correlates very closely with the performance of gold stocks.
Moving to technicals, we see one of the most bullish setups in years.
Various indices and ETFs (, , , show multi-year bases with incredibly bullish potential.
, the Canadian GDX, shows that when we remove the strong , miners are testing a 14-year-long base.
There is potential for explosive breakout moves over the coming months.
Although gold stocks have gained roughly 50% in the last 12 months, sentiment is hardly bullish.
Capital has chased strength in the stock market, the Mag 7, and crypto.
Assets in all gold miner ETFs relative to all ETF assets in stocks are near a 20-year low! This is a staggering statistic for a sector that has increased 50% in the last 12 months.
The gold stocks are in prime position for potentially spectacular gains.
Technicals, fundamentals, and sentiment are in perfect alignment.
However, they are overbought in a short-term sense, and Gold is approaching levels that could mark a temporary peak.
Focus on individual companies and identify the best values. It’s another way to sidestep corrections.
We are already positioned in the leading companies but are actively uncovering more companies that could lead the next move higher.
