Gold Mining Stocks Lead Gold Lower: What’s “Fundamentals” Got to Do with It?

Answer: Not a whole lot. But Elliott waves do!

by Nico Isaac
Updated: June 01, 2023

On May 24, the music world lost one of its greatest legends, Tina Turner, at age 83. I can still remember seeing her in concert in Atlanta as a young girl, hearing her belt out the triumphant anthem "We Don't Need Another Hero" and thinking the night sky itself couldn't possibly contain a star as bright.

Turner was the epitome of grit and glamor. She was born of a sharecropping family in Nutbush, Tennessee, abandoned by her mother as a child, and abused by her first husband, and yet she had the passion and fortitude to blaze a singular path in an industry that took women half as seriously as men, to become the literal "Queen of Rock and Roll."

Quite simply, Tina Turner was living proof that going against the grain and forging one's independent path despite doubt, criticism, or the pressure to conform can be its own greatest reward.

On the less sequined-dress-filled stage of financial market forecasting, Elliott wave analysts know what it's like to follow the beat of their own drummer. That beat sounds a lot different than the conventional rhythm of "fundamental" market analysis: "ba-bum-bum, news moves markets, bum-bum."

Take the recent performance in gold mining stocks and gold prices. In mid-April, sector leader VANECK Gold Miners ETF (NYSE: GDX) stood at its highest level in a year. And, according to the mainstream experts, a cache of supportive events was set to keep the wind at the sector's back. On April 8, Forbes revealed that many gold mining stocks were "blasting" into unseen hemispheres to outperform tech giants like "Apple, Google, and Microsoft."

And on April 14, Investing.com announced the "start of a new Golden Age of Gold Mining Deals," in which "explorers and producers seek to capitalize on higher metal prices."

Yet, GDX failed to keep on burning, as Tina Turner put it. Instead, on April 14, the GDX turned down from its one-year high. That day, on April 14, our Metals Pro Service set the stage for a turn lower in GDX as a fifth wave of a rally came to its conclusion. From our Metals Pro Service on April 14:

"Falling from recent highs would suggest wave (v) was topping and gold stocks beginning to correct down in wave b (circled)."

GDX indeed dropped, but then rallied into a lower high on May 4. That day, our Metals Pro Service warned the bearish play was still intact.

"Gold stocks may push a little higher in wave (b)... Wave (c) should fall to the 0.382 to 0.618 retracement level of the five-wave advance labeled wave a (circled)."

And from there, GDX resumed its downtrend to three-month lows on May 30.

And what was gold doing at that time?

While GDX peaked on April 14 and barely missed reclaiming that high, gold prices continued to rally, reaching a record peak on May 4. This was one day after the Federal Reserve hiked interest rates another quarter percentage point, a supposed boon for bullion.

Yet, on May 4, our Metals Pro Service showed this chart of gold, pointing to a downtrend here, too:

"Gold may have completed wave v (circled) of 1 at 2085.40. The sharp drop suggests a top may be forming...

"Falling to 2047.00 should be a good signal that the trend is turning down into wave 2. Broadly, wave 2 should last for weeks."

Gold followed GDX's lead lower in a concerted fall to funky town, a 3-month nadir on May 25. On that day, our May 25 Metals Pro Service introduced the possibility that a near-term bottom was at hand.

"Pushing higher would suggest wave a (circled) of a zigzag was bottoming and price was beginning to correct up."

Price action confirmed this set-up on May 26 and Metals Pro Service filled in the blanks:

"Gold is up sharply from 1936.00 in a move that suggests five waves down may be complete.

"Continuing through 1965.40, however, would boost confidence that wave (a) of b (circled) is in progress."

And from there, gold reclaimed the upside in a modest bounce.

In Turner's raucous, unforgettable song "We Don't Need Another Hero," she sings:

"Looking for something we can rely on. There's gotta be something better out there... All else are castles built in the air."

Investing carries risk, and Elliott wave analysis is far from fool-proof. But if you're looking for something more objective in its approach to market trends than chasing news stories in gold and gold stocks, silver, copper, aluminum and more -- then our Metals Pro Service may strike the right note for you.