Gold mining shares continued with their disappointing performance on Friday. Even on a day in which the sector traded higher, the performance was lackluster considering the price moves of the underlying metals (gold and silver). 

As gold sits within a whisker of the $1300 level once again, the GDX remains below the $23 support/resistance level - the last several times that gold was trading up close to $1300 (during a short term uptrend) the GDX was at significantly higher levels than it closed on Friday:

GDX/Gold/Bitcoin

I believe there are two primary reasons for the gold miners' recent sluggish performance:

  • Despite gold's ~1.4% surge on Friday it remains in a range-bound oscillation devoid of a sustainable trend. Investors & traders have become accustomed to selling into rallies as opposed to holding positions OR even adding to bullish positions on price rises (a common trading technique during bull market environments).
  • Cryptocurrencies have stolen much of gold's thunder in 2017 as the total cryptocurrency space has gone from less than US$20 billion in total market capitalization at the beginning of the year to ~US$235 billion as I write these words:

A potential 3rd reason for gold miners' recent sluggishness as a sector is that tax loss selling could be weighing down some of the stocks that have disappointed investors during 2017 (see Barrick $ABX and Goldcorp $G). 

With more than US$200 billion flowing into cryptocurrencies globally during 2017 one can imagine that at least a 10% chunk of that capital would have otherwise been deployed to the precious metals sector. The challenge for precious metals mining investors is to figure out if/when this trend will end. 

At least for now it seems there is more capital waiting to pour into cryptocurrencies before year end. However, a situation could be shaping up for investors to opportunistically add exposure to the precious metals sector over the coming weeks; just in time for a sentiment shift (as value investors buy what has recently been out of favor, and sell some of what produced big gains in 2017), and seasonal tailwinds (January/February is the best two month stretch of the year historically for gold miners), to kick in at the beginning of the new year. 


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