Gold continues to very slowly work its way higher. It’s up 20% in the past 20 months. Junior gold miners, on the other hand, are already up nearly 80%.
Sometimes it’s worth the extra risk for the extra reward. This is likely one of those times.
We’ve been bullish on gold for a long time. We outlined our reasons for being bullish on gold last month. It triggered a Stock State Indicator (SSI) Entry signal in April and has been trending steadily higher.
However, Junior gold miners are like adding rocket fuel to gold’s engine.
GDXJ is the VanEck junior gold miners. This ETF is composed only of small cap gold and silver mining stocks.
Since the beginning of 2016, the price of gold is up almost 20%. But GDXJ is up almost 80%. It’s highly correlated to the price of gold, but with much more volatility.
GDXJ triggered an SSI Entry signal back in April 2016 and it hasn’t stopped out yet. (That was about a year before gold itself triggered an SSI Entry signal.)
The VQ for GDXJ is 42.2%. The top holdings in this ETF are overall very bullish. Eight of the top ten holdings in this ETF are currently in the SSI Green Zone.
If you were to take $1,000 of risk in IAG, for example, that means you’d invest only $1,680 in the stock. If a $1,680 investment in IAG falls 59.4%, your investment would be down by $1,000.
Moreover, if you were to take the same $1,000 risk in GLD, the ETF for gold, you could invest almost $8,560. If your $8,560 investment in GLD fell 11.1%, your investment would be down $1,000.
Typically, the junior miners do well when the underlying prices of gold and silver are moving higher. We remain bullish on gold. And we believe the junior miners will continue to benefit from gold’s continued move higher.
Mining for upside,
Richard Smith, PhD
CEO & Founder, TradeStops