There’s good news and bad news. The good news is that gold stocks and precious metals at large are approaching a major bottom. The bad news is that history shows potential for sharp selloffs in the weeks to a few months preceding these major bottoms.
Here is a look at the HUI Gold Bugs Index.
I noted the declines in the weeks preceding the lows and then the ensuing gains, which are always greater than 100% in bull markets.
Next, here is the MVIS Junior Gold Miners Index, which is a parent index to VanEck Junior Gold Miners ETF (NYSE:GDXJ). The selloffs at the tail end of larger declines have led to massive rebounds.
As I’ve detailed in past articles and videos, precious metals have a history of making bottoms when the Federal Reserve executes its first rate hike in a new cycle.
In the last three cycles of rate hikes, gold rebounded an average of 28% after the first hike.
If the Federal Reserve has to stop or pause its rate hikes this year, then look for gold to retest its all-time high before 2023. In this scenario, GDXJ, which could bottom as low as $30 or $32, has upside to $54.
However, it is critical to own the right stocks.
Capital will flow first to companies with large economic assets. Numerous juniors will not outperform until gold takes out $1900.