Will It Take a Big Market Decline for Mining Stocks to Rally?
2024.12.31 04:38
Some of the subscribers to my Mining Stock Journal have been asking me if I thought it would take a big sell-off in the general stock market before the mining stocks will resume their bull cycle, noting that “several analysts seem to think that’s the case.”
I’m puzzled by this notion because the mining stocks have been in bull mode since late September 2022:
Between 2/28/24 and today, is up 31% vs 22% for the . I don’t know what more goldbugs could ask for? That GDX ROR was achieved with the stock market in a strong rally. When GDX topped on 10/22/24, it was up 71% from the end of February. The sell-off since the top is part of a much-needed (and welcomed by me even though I don’t like it) corrective pullback.
The sell-off in the sector today (December 390th) was likely driven by hedge funds dumping paper gold and silver contracts plus unloading stocks across the board, including mining stocks, in their leveraged portfolios. I’m certain retail mining stock shareholders with weak hands were dumping today too.
This correction/pullback in the sector will run its course. The miners might get pushed lower if the stock market dumps but I think there will be a New Year’s rally as retirement fund contribution money and cash flowing into investment funds is put to work. But who knows?
Also if the trading pattern is similar to that of 2008, and I think it could be, the mining stocks and /Nasdaq both declined together between mid-March 2008 and the end of October 2008. But then the precious metals sector reversed higher while the rest of the stock market didn’t bottom until March 2009.
But it wasn’t the continued dump in the general stock market that triggered the rally in the mining stocks. It was driven by the sharp reversal in gold and silver after the Fed began to print money. Smart money that understood the effect money printing would have on the value of the piled into , and mining stocks. I expect the Fed to begin overtly printing money, likely under a program with a misleading name – like “Bank Term Funding Program” – which was a form of QE.
The best I can say is that I believe the precious metals sector will be much higher 12 months from now but I don’t know the price-path it will take and I don’t think a resumption of the rally is dependent on a crash in the Nasdaq.
Hell the is down 7.4% from its ATH at the end of November and only 32% of all stocks are above their 50 dma. The point here is that the broad stock market has been declining while the mining stocks have been pulling back.
