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 continuing themes. Mike graduated with a business degree and spent years as a financial advisor, before moving to New York and to pursue a career in IT and education. For more than a decade Mike has been working with the Adam Mesh Trading Group as a stock market and commodities mentor. He’s trained over 200 individuals, spoken at several national conventions, and is a frequent contributor to educational webinars.

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 keeps him in touch with "the student mindset".

Mike focuses on the precious metals markets, the energy industry, and the financial sector. His motto is "Plan your trade, then trade your plan!"

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