Gold Miners Seem to Struggle as Fear Bubble Deflates

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Gold Miners Seem to Struggle as Fear Bubble Deflates

Gold miners rallied hard over the summer, but now face a potentially big test.

The Market Vectors Gold Miners ETF (GDX) rose more than 50 percent between late May and early September. The main reasons were rate cuts by the Federal Reserve and worries about the global economy.

More recently, a sense of calm has returned to the market. President Trump has taken a more conciliatory approach to China and employment numbers have remained strong. Attention is also shifting toward corporate earnings and the potential for a strong holiday-shopping season.

GDX may find itself at a difficult spot now because of the Fed. Key policymakers including Jerome Powell and Richard Clarida won’t commit to further interest-rate cuts. Based on their track record of bailing out the market when volatility hits, a return to calm could make them halt rate cuts.

Market Vectors Gold Miners ETF (GDX) with select indicators and $26 level marked.
Market Vectors Gold Miners ETF (GDX) with select indicators and $26 level marked.

Charting Gold Miners

Chart watchers may see some headwinds for GDX. It’s spent the last week near $26. That same level could have relevance because it was both support and resistance in July.

There are also some signs of momentum turning more negative. Just look at the moving average convergence/divergence (MACD) indicator on the chart. Additionally, the 20-, 30- and 50-day simple moving averages are also falling.

Potential catalysts to watch on GDX may include:

  • Signs of global risk easing, like progress on the U.S.-China trade war
  • Economic events like gross domestic product and the Fed meeting on October 30
  • A breakout to new highs in the S&P 500

In conclusion, gold miners rallied for a specific set of reasons earlier this year. But now those circumstances may be shifting.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.