Gold Advice: Here’s How to Trade Junior Miners

Every once in a while, you’ll hear gold advice about how mining stocks trade differently than gold itself.  What they’re usually pointing out is that gold itself is not as volatile as the mining stocks. For example, if gold moves one percent, then the miners will move more.  You hear this a lot in lessons, YouTube videos, and at the bar on Friday nights if you hang around anyone who trades precious metals.

But is it really true?  Do the miners really move more than gold? Today let’s look at the junior miners and see if the conventional wisdom holds true.

Here is a chart of GDXJ vs GLD over the past 3 months.  GDXJ is an unleveraged ETF that tracks junior gold mining stocks. (GDX tracks the senior miners, add the J for the juniors.  Easy to remember, right?) GLD is the biggest unleveraged ETF for gold itself.  The bars are GDXJ, the line is for GLD. They are indexed to zero at the start, and the scale is percent-change from there so we can compare them.  Here goes –

(chart here, credit Fidelity)

What we see is that the bars and the line move generally in the same direction.  When the line (GLD) heads up, so do the bars (GDXJ).  And vice versa.

What’s interesting is when the line changes direction, the bars respond by moving more.  Especially in the middle of the chart.  When the line goes up, the bars go UP.  When the line heads down, the bars head DOWN.

So yes, Virginia, the old advice is true, at least for the junior miners.  And we can see in this chart how different the size of the moves can be.

There are some times when gold and the miners come apart and the miners don’t track changes in gold.  Most of the times this happens is when gold starts heading up, but the miners don’t move.  Yet.  After a few days of gold moving up, the miners will usually have a “snap-back” day where they make up all the difference, and then some.  

Here’s some gold advice from your neighborhood Gold Enthusiast.  If you see gold has gone up for 2 days in a row but the miners haven’t moved, buy yourself some leveraged mining ETF.  NUGT is the biggest leveraged ETF for the seniors, JNUG for the juniors.  Then sit back and get ready for some quick profits.

Signed, The Gold Enthusiast

DISCLAIMER:  The author is long NUGT and JNUG, and may add to or sell these positions in the next 48 hours.  These are tiny, wouldn’t-move-any-market sized positions.

 Related: You Won’t Believe How Much Gold is Thrown Away! 

About the author

Mike Hammer

Mike Hammer has had a wide-ranging career, with trading and investing as a continuing theme. Mike graduated from UC Berkeley with a business degree, then worked with Macy's in their operations arm. He left Macy's and spent a summer trading his own account, which taught him a lot about trading in general and markets in particular. Trading through the Black Monday and the Crash of 1987 showed him how most people are unprepared for upheavals in their trading. He then joined Waddell & Reed as a financial advisor, helping regular people understand their finances and meet their life goals.

Then came the usual story - Mike met and married the lady of his dreams. They moved to upstate New York, where Mike worked first for a small manufacturing consulting company, then Cornell University. While loving the work and the higher-education atmosphere, Mike missed the world of finance. Eventually, he signed up for stock trading coaching with the Adam Mesh Trading Group, to learn from people who understood modern markets. Within a year, Adam asked Mike to become a stock trading coach.

Since then, Mike has trained over 200 individuals, spoke at several national conventions, and is a frequent contributor to conference calls across the Adam Mesh community. Mike writes The Gold Enthusiast daily newsletter, runs the Golden Hammer trading service, and participates in the Mesh Private Portfolio. He also keeps a position in international education which keep him in touch with "the student mindset". Mike closely follows the gold, energy, and financial sectors. His motto is "Plan your trade, then trade your plan!"

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