Junior miners should come together – what’s holding them back?
ETF GDXJ fell 1.18%.
This is an extremely bearish short term sign as it is evident that the exact opposite has happened to what was actually supposed to happen. The most likely reason? Underage minors are just anxious to refuse.
Junior mining stocks (the GDXJ ETF is often used as an indicator for them) retreated yesterday to their rising short-term support line and ended the session nearby. There was no outage, but given the weak trading performance against gold and equities, it looks like we won’t have to wait for it to materialize.
And speaking of relative performance, it’s not just day-to-day performance. ETF GDXJ’s intraday low yesterday was just a cent above March’s intraday high. For comparison, yesterday’s intraday gold low was over $ 50 above its March intraday high. And the S&P 500 was 91.12 index points (over 2%) above its March intraday high.
My comments of May 11 on the additional reason for the weakness of the juniors remain up to date:
But what about the juniors? Why haven’t they soared relative to senior mining stocks? What makes them so special (and weak) right now? In my opinion, it’s the fact that we now have – unlike any time in the past – an asset class that looks just as attractive to the investing public. Not to everyone, but to some. And this “some” is enough for the juniors to underperform.
Instead of speculating on an individual junior miner doing a murder after striking gold or silver in an extremely rich deposit, now it’s easier than ever to get the same kind of thrill buying … an altcoin (like Dogecoin or something else). In fact, people themselves can engage in “mining” of these coins. And just as bitcoin seems similar to gold to many investors (especially the younger generation), altcoins could serve as the “junior mining stocks” of the electronic future. At least they could be seen as such by some.
Therefore, part of the demand for juniors was not based on ‘sympathy’ towards the precious metals market, but rather on the emotional thrill (striking gold) combined with anti-establishment tendencies ( gold and silver are anti-metals, but cryptocurrencies are anti-establishment in their own way). And since everyone and their brother seem to be talking about all that this or that altcoin has earned recently, it’s easy to see why some people have jumped on this bandwagon instead of investing in underage miners.
This trend is not expected to go away in the short term, so it looks like we have another reason to believe that the GDXJ ETF will fall a lot more in the following months – falling more than the GDX ETF. The above drop + the drop in gold + the drop in stocks is really an extremely bearish combination, in my opinion.
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Przemyslaw Radomski, CFA
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