Mining Share Breakout or Fakeout?

The mining shares have seen a string rally over the past few months as precious metal prices have risen. Could the sector be poised to make further gains and accelerate from here? Let's discuss that today.

But first, let's remember the essentials. Only physical precious metal can protect you from the monetary madness at The End of The Great Keynesian Experiment. I've been consistently stacking gold and silver since 2009 and almost all of my work has been dedicated to the precious metals in the fifteen years since.

However, I also own some mining shares and I'm sure that probably do, too. If you can time them correctly, the mining shares can provide leverage to the metal price and they can allow you to generate some decent trading profits. If you can time them correctly. That's the challenge.

For example, take a look at Agnico-Eagle, by output the third-largest gold producer. It's shares are up 50% from the mid-February lows. That's quite the move!

If you owned the shares through the rally...and I've held them for years...this latest rally has been quite a ride and a welcome relief. But what if you're new to the sector and you'd like to get involved? Is it too late? Has the proverbial train already left the station? For answers, let's tale a look at a few charts.

Let's start with the ETF that trades under the symbol GDX. This is the largest gold mining ETF and below you can see a list of its top 10 holdings:

On the daily chart, you can see that, like Agnico-Eagle, it has had quite the run over the past two months.

However, has this been just another rally amidst an ongoing downtrend or has the sector broken out in a new bull market? For that answer, we must consult a longer-term chart. Below is that chart. This is full history of the ETF, going back to its inception in 2006. From the highs in 2011 to the lows in early 2016, you can draw what looks like a pennant. 

And what does this pennant tell us? No breakout...at least not yet...bit we should definitely watch the $36 level pretty closely when price eventually gets there.

How about the junior gold miners? How are they doing? There's an ETF for that sector, too, and it trades under the symbol GDXJ. Below are its top ten holdings.

This ETF began trading in late 2009 and it took an absolute beating as the gold price from 2011 to 2015. However, if we start our analysis at the lows, you can see the price getting better over time. Has it broken out of its most recent consolidation? Maybe it has....but it has a long way to go. If it can get past $45 and then $52, it might make run back to levels last seen in 2020. But those are big IFs and, to my eye, this chart does not have the look of something that's ready to scream higher.

Lastly, how about the silver miners? As you might have guessed, there's an ETF for them, too, and it trades under the symbol SILJ. Below are its top holdings:

How has the SILJ been trading? In the short term, it has moved strongly higher and anyone lucky enough to have bought it in late February has seen a 50% gain.

However, and just like the GDXJ, this baby still has a long way to go. Even if we reset the clock to early 2015, price is only up a few dollars in the time since...though the price of silver has doubled. With that in mind, it's difficult to recommend this ETF as a long term hold but, IF it can continue higher in the weeks ahead and get above $12/share, it may at least get back to the previous highs of 2016 and 2021.

So, in a full roundtrip, let's conclude this week back where we started. Yes, the mining sector can provide leverage and trading profits and, yes, the charts suggest that more upside is possible from here. However, it is quite clear that, over time, a better strategy is simply the accumulation of physical precious metal.

Here's one last chart. Below is the GDX in candlesticks since inception with the price of gold displayed as a blue line. If your strategy is to buy and hold, what's working out better? The metal or the shares?

Thanks for taking the time to read this. Have a great week!