VanEck Gold Miners ETF News - GDX

Gold-Stock Tipping Point 2
By: Adam Hamilton | October 18, 2024

The gold miners’ stocks look to be getting even closer to a crucial psychological tipping point. After years of being mired in apathy, this small contrarian sector appears poised to finally return to popularity. When traders flock to gold stocks to chase their upside momentum, massive uplegs ensue where doublings-plus aren’t uncommon. And across entire bull markets, total gold-stock gains can exceed an order of magnitude.

Eleven weeks ago, I penned my original gold-stock-tipping-point essay. My thesis then was gold stocks were on the verge of being noticed by much-broader groups of speculators and investors. They would increasingly pile in to ride mounting sector gains, catapulting gold stocks way higher. Gold miners remain seriously undervalued relative to these record prevailing gold prices, they need to mean revert and normalize.

Much has happened in the several months since, making this case even stronger. The day that essay was published, gold and the leading GDX gold-stock ETF were trading at $2,436 and $36.48. Gold’s last nominal record close of $2,465 was seen several weeks earlier, while GDX’s upleg-to-date best then ran $39.28. It really felt like traders’ interest in gold and its miners’ stocks was growing, a very-bullish omen.

While feelings aren’t empirical, decades of experience hones them into valuable indicators. For a quarter-century now, I’ve been a financial-newsletter guy researching, writing about, and actively trading this gold-stock sector. This is my 1,144th weekly web essay since mid-2000, and I’ve written 291 monthly and 1,118 weekly paid-subscription newsletters in that long span! Active real-world gold-stock trading was a big part.

Both newsletters have recommended and realized 1,531 stock trades as of the end of Q3’24. All those including all losers have averaged excellent +16.0% annualized realized gains! That’s roughly double the long-term stock-market average. After spending the vast majority of my professional life deeply immersed in this realm, my experience and knowledge is world-class. Plenty of signs now point to improving psychology.

Chief among them is gold and GDX continuing to power higher on balance despite formidable challenges. Since that original essay, gold has achieved 14 new nominal record closes including midweek’s latest one at $2,673! That’s another big 9.8% rally despite gold recently facing high odds for a considerable selloff to rebalance sentiment and technicals. Strength contrary to probable weakness reveals shifting psychology.

In early October I wrote an entire essay analyzing gold’s high selloff risk. Two dominant factors fueled that, including gold blasting up to extreme overboughtness. That was driven by massive gold-futures buying by speculators, leaving their positioning way-overextended and their likely capital firepower for buying exhausted. Plenty of catalysts loomed that could spawn cascading gold-futures selling slamming gold.

Specs look to the US dollar’s fortunes to guide their wildly-leveraged and super-risky gold-futures trading. And the US Dollar Index in turn is often bullied around by major US economic-data releases. Depending on how they come in relative to economists’ forecasts, they can really move futures-implied expected Fed rate cuts. Those seemed impossibly-high in early August, at 116 basis points in 2024 then another 100bp in 2025!

That was almost nine quarter-point cuts over 16 months, pretty optimistic. While the FOMC did birth this latest cutting cycle with an outsized 50bp slashing in mid-September, those expected Fed rate cuts have indeed retreated on better-than-expected key economic data. Heavy gold-futures selling has often been spawned in recent years on upside surprises in US jobs, CPI inflation, PPI inflation, and retail sales.

All four latest reads proved Fed-hawkish and boosted the US dollar, which should’ve unleashed big gold-futures dumping! September’s nonfarm payrolls soared 254k, massively beating the +150k expected on top of +72k jobs in past-two-month revisions. All four of the September CPI’s key metrics came in 0.1% hotter than forecasts, and two of the four PPI ones printed 0.2% above consensus. These meant slower rate cuts.

Indeed by Wednesday expected Fed rate cuts in 2024 and 2025 had slumped to 45bp more and 99bp. As of midweek, the USDX had surged 3.2% in several weeks which is a big-and-sharp rally for it. Yet during that time with everything aligning out of favor for gold, it still managed to rally 0.4%! While gold did suffer a minor 2.4% pullback into early October, it rapidly rebounded to that latest record close Wednesday.

September retail sales were released Thursday morning before I started writing this essay, also proving a Fed-hawkish upside surprise. So this past month’s major economic data was certainly dollar-bullish and gold-bearish due to deteriorating expected Fed rate cuts. Yet gold powered higher anyway, likely on big buying from Chinese investors, central banks, and Indian brides’ families. Gold is really defying the odds.

Gold’s defiant march to more record highs is putting it on more traders’ radars. Financial-media coverage is becoming more-frequent and more-bullish, building awareness. Even American stock investors, who have mostly ignored gold’s monster 46.9% upleg over this past year, are increasingly nibbling in GLD and IAU gold-ETF shares. While small, their daily gold-bullion-holdings builds on capital inflows have been relentless.

So gold looks to be nearing its own psychological tipping point, where gains accelerate sparking a fear-of-missing-out rush to pile in. Seasonal tailwinds will soon turn favorable again too. Gold tends to suffer a seasonal pullback from late September to late October, before its biggest seasonal rally powers higher into late February. That has averaged 8.4% over 20 of the last 23 years, which were gold’s bull-market ones.

If gold’s early-October pullback low holds and this year’s winter rally merely proves average, gold would shoot over $2,825 in coming months! And as goes gold, so go its miners’ stocks. They ultimately act like leveraged plays on gold, with the majors dominating GDX usually amplifying their metal’s upside by 2x to 3x. Indeed GDX has rallied with gold recently, achieving another bull-market high of $41.64 in late September.

GDX has powered 60.7% higher over this past year, a good upleg. But it remains quite weak relative to gold, with mere 1.3x amplification. That’s way behind historical precedent. Gold’s last similar monster uplegs both peaked in 2020, averaging 41.4% gains. GDX averaged great 105.4% uplegs during those, doublings-plus at 2.5x leverage! GDX should already be up 95% to 140% in today’s monster gold upleg.

So gold stocks have lots more mean-reversion normalization rallying left to do even at today’s gold levels, let alone where this bull is heading. And GDX just has to inch a little higher to achieve a major technical breakout, which will hasten that crucial psychological tipping point arriving. Forging decisively above $42 ought to fuel increasing and enthusiastic financial-media gold-stock coverage, building greed-driven momentum.

When GDX hit $41.64 in late September, those were gold stocks’ best levels in 4.0 years. As I’m writing this draft midday Thursday, GDX is trading even higher at $41.86. The last time GDX closed over $42 was in mid-September 2020, six weeks after a powerful gold-stock upleg catapulted GDX 134.1% higher to $44.48. Exceed that, and this leading gold-stock benchmark will be at its best levels since January 2013!

Traders love chasing winners, and the financial media love to cover them. Decade-plus gold-stock highs less than 9% above midweek levels should be achieved soon, really boosting popular awareness of gold miners’ upside momentum. That dynamic can quickly become self-feeding, ultimately culminating in a popular speculative mania. It really feels like that process is accelerating, that sentiment tipping point is nearing...

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Gold Miners’ Epic Quarter
By: Adam Hamilton | October 11, 2024

The gold miners are on the verge of reporting another best quarter ever. Q3’s earnings season ramping up soon will prove epic, fueled by dazzling record gold prices and slightly-lower mining costs. That ought to double sector unit profits, extending gold stocks’ long trend of massive earnings growth. Such fantastic results should increasingly catch fund investors’ attention, with their inflows driving this sector way higher.

Gold stocks remain out of favor, greatly lagging gold’s monster upleg over this past year. This has proven one of gold’s mightiest advances in many years, soaring 46.8% over 11.7 months! Historically larger gold miners dominating the leading GDX gold-stock ETF have seen their stock prices amplify gold uplegs by 2x to 3x. Yet instead of seeing normal 95%- to-140% upleg gains, GDX has merely rallied 60.7% at best!

That very-poor 1.3x upside leverage to gold has been a real kick in the teeth for contrarian speculators and investors. Gold stocks need to way outperform their metal to compensate for the big additional operational, geological, and geopolitical risks they heap on top of gold price trends. Yet so far that sure hasn’t happened in this upleg, leaving traders increasingly disappointed with this lucrative high-potential sector.

Two major factors contributed to this surprising anomaly. First gold-stock sentiment was crushed in mid-2022 and hasn’t recovered. Then the Fed’s most-violent rate-hike cycle ever catapulted the US Dollar Index up an incredible 16.7% in 6.0 months to an extreme 20.4-year secular peak! That spawned colossal gold-futures selling, slamming gold 20.9% lower in 6.6 months. GDX cratered a brutal 46.5% during that!

Second while gold blasted up 26.4% year-to-date, traders have been overwhelmingly distracted by the AI stock bubble. While gold achieved 35 nominal-record closing highs so far this year, the S&P 500 bested that with a whopping 44 of its own! Gold and gold stocks are alternative investments, thriving the most when general stock markets grind lower. Instead they’ve been surging, spinning off vast greed and euphoria.

But sooner or later all that will pass, and gold stocks will be bid way higher to reflect these lofty prevailing gold prices. The gold miners’ phenomenal fundamentals overwhelmingly support this bullish thesis. For 33 quarters in a row now, I’ve painstakingly analyzed the latest results reported by GDX’s 25-biggest component stocks. Right after each quarterly earnings season, I write essays explaining how they are performing.

Across individual gold miners, there are always plenty of distorted bottom-line earnings. These include big noncash gains and losses arising from unusual items ranging from acquisitions to impairment charges. But that noise can be distilled out with an excellent proxy for sector unit profits. It simply averages the GDX top 25’s all-in sustaining costs in any quarter, then subtracts them from its average gold price.

These implied per-ounce profits have been skyrocketing, leaving gold stocks deeply undervalued relative to their metal. A year ago in Q3’23, the GDX top 25 reported $622 in unit earnings which soared 94% YoY. Then in Q4’23, those grew again to $659 per ounce which shot up another 42% YoY. That trend persisted in Q1’24, with these major gold miners averaging earning $795 per ounce which powered up 35% YoY.

Then all that accelerated dramatically in the spectacular Q2’24, which I analyzed in depth in a mid-August essay. That quarter’s record average gold price of $2,337 combined with GDX-top-25 AISCs plunging 10.2% YoY to $1,239 catapulted unit earnings to a dazzling record $1,099! That blasted up another 84% YoY. So miners’ last four reported quarters have seen per-ounce profits soar 94%, 42%, 35%, and 84% YoY!

Such explosive profits growth has naturally slammed gold miners’ price-to-earnings ratios dramatically lower, into the teens and even single digits in some cases. With fantastically-bullish fundamentals like this, you’d think traders would be rushing into this high-potential sector. But gold stocks remain mired in apathy, lost in the shadow of this crazy AI stock bubble stealing all the limelight. Yet its days are numbered.

Eventually stock prices always mean revert to some reasonable multiple of underlying corporate earnings. Market-darling AI stocks can’t trade with 60x+ P/Es indefinitely, and good gold stocks can’t remain at sub-15x multiples. Sooner or later some catalyst will spark overdue capital flows to start normalizing all this. It could be the AI stock bubble finally bursting and decisively rolling over, it could prove gold surging even higher.

But maybe the gold miners will stack enough sensational earnings seasons to convince fund managers to return. Their relatively-big buying in this relatively-small sector will drive stock prices way higher, which will eventually fuel greed, euphoria, and maybe even a popular speculative mania. Gold stocks are about to report absolutely-epic Q3 results, their best ever achieved by far! That could prove this sector’s tipping point.

Q3’24’s average gold price soared an amazing 28.6% YoY to a new all-time record $2,477! This is utterly stunning considering just a year ago that highwater mark had been $1,978. Gold’s phenomenal prices last quarter were fueled by major buying from gold-futures speculators, central banks around the world, Chinese investors, and a huge surge in Indian gold imports. I could write entire essays discussing each.

But today realize Q3’s record gold levels have been set in stone, they can’t be revised lower like Biden Administration jobs reports. So the only variable driving sector unit profitability is the GDX top 25’s average all-in sustaining costs. Over the past four quarters they have been trending lower on balance, clocking in at $1,304, $1,317, $1,277, and $1,239 per ounce. That averages $1,284, a conservative baseline.

The majority of these elite major gold miners provide and update AISC guidance throughout the year. And many of them are forecasting higher production and thus lower mining costs in H2’24 compared to H1. Gold mining has massive fixed costs, which growing output spreads across more ounces reducing unit costs. A surprising number of major gold miners continued guiding to considerably-lower costs in Q3 and Q4.

The world’s largest gold miner and GDX’s biggest component by far with a huge 14.6% weighting is a great example. In Q1 and Q2, Newmont reported AISCs of $1,439 and $1,562 per ounce. That averaged a little over $1,500 in H1. Yet in late July NEM reaffirmed its full-year-2024 AISC guidance at just $1,400 per ounce. Unlike most of its peers, Newmont didn’t even give a range. And its 2024 output was H2-weighted.

Back in late February this super-major forecast 47% of this year’s production would come in H1, then 53% in H2. That alone is going to force AISCs lower. To hit that $1,400 AISC target for all of 2024, Q3’s and Q4’s would have to average just $1,300! That is sharply lower from Q1’s and Q2’s, and would make for a big improvement. We are talking about H2 AISCs plunging 13%+ from H1 levels, which would be amazing.

While I really doubt NEM will achieve such low Q3 and Q4 AISCs, they will definitely materially improve. And there are plenty of other GDX-top-25 majors with similar much-better-mining-cost forecasts for H2 compared to H1. Collectively these elite gold miners averaged $1,258 AISCs in H1’24. It seems pretty conservative to imagine them improving 2%ish in this soon-to-be-reported Q3, which would be near $1,230.

We won’t know what the actual average is until Q3 earnings season ends in mid-November, after which I’ll write another essay fully analyzing those collective results. But if GDX-top-25 AISCs come in around $1,230, subtracted from Q3’s phenomenal $2,477 average gold price that yields implied sector profits of $1,247 per ounce! That would crush Q2’24’s previous record of $1,099, and skyrocket over 100% YoY!

You’d sure think a doubling in gold miners’ already-massive profits would impress some fund managers, motivating them to add gold-stock positions. But even if GDX-top-25 Q3 AISCs come in way higher for some reason, profitability is still going to soar. Even if those average AISCs prove much worse up near $1,350, Q3’s unit earnings would still soar 81% YoY to a new record $1,127. Those profits will prove epic.

Crazily due to this AI stock bubble and funds dangerously concentrated in a handful of wildly-overcrowded AI plays, American stock investors’ overall allocations to gold are effectively zero. Entering October, the S&P 500 stocks collectively commanded a staggering $51,247b market capitalization. Yet the combined holdings of the world-dominant American GLD and IAU gold ETFs were merely worth $106b that same day.

That implies a trivial 0.2% gold allocation, despite gold’s record-shattering year! That should be 5% to 10%, since gold has always been an essential portfolio diversifier. Even if it grows to 1%, gold is heading way higher. And fund managers’ allocations to gold miners’ stocks are similarly-tiny. At some point gold miners’ earnings will grow so fat and rich that their stocks can no longer be ignored, and capital inflows will soar.

While the major gold stocks’ imminent Q3 results are going to be jaw-droppingly awesome, this sector does face a near-term speedbump. Gold stocks leverage gold, and it faces high selloff risks during coming weeks. My essay last week analyzed this in depth. Gold simply blasted too far too fast to extremely-overbought levels driven by heavy gold-futures buying, leaving speculators’ positioning extreme.

But despite gold growing really overextended, gold stocks are not since they have lagged their metal so much this year. This chart divides GDX by its own 200-day moving average, creating an overbought-and-oversold indicator I call the Relative GDX. This renders gold-stock moves in constant-percentage terms around a 200dma flattened to horizontal at 1.00x. Over time this rGDX indicator tends to form trading ranges.

The current one based on the last five years of data runs from extremely-oversold levels under 0.75x GDX’s 200dma to extremely-overbought ones over 1.30x. Unlike its metal, GDX still hasn’t yet reached the latter warning levels in this year-long upleg! At the major gold stocks’ latest interim high achieved in late September, the rGDX was merely running 1.249x! Gold stocks don’t need to fully amplify gold’s selloff.

Of course they will to some extent, as they are leveraged plays on the metal they mine. At worst since its latest interim high, gold has pulled back 2.4% as of midweek. GDX did fall 6.8% in that span, making for 2.9x downside leverage on the higher side of that usual 2x-to-3x range. But that ought to moderate since gold stocks remain really undervalued after seriously lagging gold’s powerful advance, as precedent shows.

Gold’s last healthy mid-upleg pullback ran from late May to early June, when it dropped 5.7% rebalancing sentiment. During that span gold bled off excessive greed, GDX only retreated 10.0% making for mere 1.8x downside leverage! Any coming gold-stock downside on another gold pullback should prove relatively-muted as well. The gold stocks never challenged extreme overboughtness, and popular greed never flared.

If gold pulling back forces a gold-stock selloff ahead of or into Q3 earnings, that should prove an excellent buying opportunity. Mid-upleg pullbacks offer the best buy-relatively-low opportunities within ongoing bull-market uplegs. We ratcheted up trailing stop losses on our newsletter gold-stock trades preparing for a retreat, and I’m researching fundamentally-superior mid-tiers and juniors to buy into as it runs its course...

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