Gold And Gold Stocks, Or, Gold Or Gold Stocks?

Summary

  • If you have built a profitable GDX position, I would consider taking at least the profit off the table soon and possibly more.
  • GLD is likely to pull back to around $1400 which would be a good entry or re-entry point.
  • Look to split your gold investing into stocks and physical holdings.

Gold is looking likely to have a brief pullback soon. If you have built a double digit percentage holding in the Van Eck Gold Miners ETF (GDX) take your profit off the table. I think it is a good idea to get back down to around 4% holding for anything not under a covered call. 

I still have GDX January 2021 covered calls written that I received on average $2.71 for, so I am happy with that and if the premium fell back under a buck, I’d consider closing those positions. 

My inclination, being a retail advisor who has to keep trading constrained a bit, is to hold the calls until expatriation unless gold and gold stocks dives soon. If we get a pullback in the next month or two, I’d close the calls with the idea of writing new calls sometime down the line. 

Technical View Of GDX

Remember, we know that winners get sold off when losers trigger margin calls. That is the issue that GDX had when it had those big down days. Those were people needing cash to cover margin calls. 

Here’s the chart: 

GDX Daily

So, this is the definition of a security “in the middle of the market.” I have added a couple new indicators to help out. I also set the two measures of money flow to react quicker at 5 days to have mirrored measurements reflecting the speed of this market.

  • RSI is above middle, but not overbought. 
  • Money Flow Index, a measure of volume weighted price momentum, is just getting to overbought.
  • Chaikin money flow is headed the right way from a low number. 
  • MACD is non-committal (could go either way). 
  • The EWI, Exponential Moving Average Wave Indicator, gives a nice picture of momentum using 3 different exponential moving averages, is hinting at overbought in a few days or a reversal if there is an overnight change of direction.

So, in other words with GDX, I like it long-term, but if you are looking to trim gains from time to time and manage your asset allocation weightings, especially given the nature of margin sell-offs, then I think in coming days you can trim a bit, once, twice or even three times. I will never go below 4% in GDX though given that I do think the intermediate term upside, towards $40/share, is greater than the downside, towards $20.

SPDR Gold (GLD)

There are good reasons to consider splitting your gold holdings into both stocks and physical gold. I won’t regurgitate, but here is the link to an article from Invesco discussing just that:

The Case For Blending Gold With Gold Mining Equities

GLD Daily

The SPDR Gold ETF isn’t quite overbought, but it could be any day now. It should head down near the yellow line. I’d be a buyer at about $140. 

Disclosure: I am/we are long GDX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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