GDXJ: Myth vs. Reality

Many of you have contacted me about the sell-off in GDXJ and upcoming re-balancing that will occur at the end of this week (I think). First of all, thank you for your inquiries and please feel free to email me with questions/ideas. The only “dumb” question regarding gold, silver and mining shares is, “should I own any?”

First I wanted to highlight the difference between fact and “propaganda.” The propaganda has led many to believe that the rebalancing of the GDXJ has exerted undue pressure on the mining stocks as a whole and on the GDXJ components specifically. However, a simple graphic analysis differentiates fact from fiction:

The graph above compares GDXJ, the HUI (green line) and GDX (purple line) since the GDXJ rebalancing was announced to the market on April 17th. As you can see, over the time since the GDXJ rebalance was announced, GDXJ has performed in-line with rest of the sector. I was a bit surprised when I ran that chart. In fact, on a YTD basis, GDXJ’s rate of return is almost identical to that of the HUI and GDX:

So where does this leave us? The entire sector has moved lower since early February. Maybe this was in anticipation of the GDXJ rebalancing “whispers” and maybe not. Often the miners will be hit before a manipulated take-down of the gold price is implemented. That narrative fits the chart above as well.

It’s important to distinguish the difference between the propaganda and truth, because that’s where money can be made in the markets. The truth is that the sector has sold off after a nice move from the mid-December 2016 low. But I also believe that the market is setting up for another big move into the 3rd and 4th quarters. It may take all summer for this to materialize, but the economic, financial and geopolitical fundamentals, as they are unfolding, weigh heavily in favor of big move higher in the precious metals sector.

One other point I would like to make – something that you WILL NOT HEAR from Wall Street or from Rickards or from the financial media: since bottoming in mid-December, the HUI is up 14.7%, GDX up 16.1% and GDXJ up 15.3% vs the S&P 500 which is up 7.7%. The mining stocks, since bottoming in mid-December, have outperformed the S&P 500 over the same time period through today (June 15, 2017).

Several of you have asked for ideas on the stocks in the GDXJ index that are “oversold” due to the rebalancing. As I’ve just demonstrated graphically and with ROR numbers, GDXJ has not really sold off since mid-April anymore than the larger-cap mining stocks in the HUI index and in GDX. Those are the numbers. I can’t make those up. It’s “narratives” that are fabricated.

Having said that, I did present two ideas in the Mining Stock Journal which happen to be in the GDXJ. One is up 6% since May 4th – and it has a lot higher to move – and the other is up 20% since June 1st, with a lot more left in the move.

A subscriber told me yesterday that a well-known subscription service that costs $1500/year is promoting 3 ideas from GDXJ. This is probably one of the services that is promoting the idea that the GDXJ has been hit unusually hard. I’ve shown above that idea is a false narrative. The Mining Stock Journal is $20/month with no minimum commitment. Subscriber turnover is exceptionally low for a reason. You can find out more about it here: http://investmentresearchdynamics.com/mining-stock-journal/