Is It Time To Buy the Dip in Gold?

NYSE: GLD | SPDR Gold Shares News, Ratings, and Charts

GLD – Gold (GLD) has underperformed all year and is now down more than 20% from its all-time highs. However, fundamentals remain supportive as the economy slows while inflation remains a threat. Taylor Dart breaks down why you should consider buying the dip.

Investors in the precious metals sector have endured a long stretch of underperformance, with the gold (GLD) price sliding nearly 20% from its Q3 2020 highs while most other asset classes have risen. Those investors holding producers have had an even tougher time, with the Gold Miners Index (GDX) down 15% year-to-date. However, with many generalist investors throwing in the towel and even gold bugs beginning to rethink their loyalty to the trade, the end of the correction is likely near. This sense of despair is corroborated by bullish sentiment readings, which have dropped to their lowest readings since 2018. Let’s take a closer look below:

Chart Description automatically generated


As evidenced by the above chart, gold is an emotional trade, with sentiment swinging from one extreme to another more than 14 times over the past decade. However, while we’ve seen multiple readings of extreme pessimism since 2012, all of these readings except one (Q3 2018) occurred in the 2012-2016 secular bear market. These readings denote instances when we have more than four market participants bearish for every one investor that’s bullish, with readings this extreme making sense in multi-year bear markets.

Due to the violent correction in the gold price in 2018, we saw the first reading in a decade of extreme pessimism in September 2018 outside of a secular bear market. This ended up marking the bottom for gold at $1,180/oz. Within the next two years, gold advanced more than 60% to a new all-time high above $2,000/oz and has yet to trade below its August 2018 low, which occurred just two weeks before the sentiment buy signal. As the current reading shows, we could be less than two weeks away from a similar reading, with the 14-month correction for gold breaking the spirits of most investors. This would represent a strong contrarian buy signal, and it would have very bullish implications for the metal going forward. If it were to play out similarly to the 2018 signal, it would forecast a range of $1,650/oz to $2,600/oz over the next two years, which would likely translate to a more than 100% increase in the Gold Miners Index. This is because the index typically mirrors the performance of the gold price, but with more than twice the leverage, given the significant changes in margins that producers enjoy when the gold price is rising.

So, what’s the best course of action?

Chart, histogram Description automatically generated


As shown above, gold continues to back test its multi-year breakout level in the $1,740/oz to $1,760/oz range, and as long as gold stays above $1,650/oz, I see no reason to lose sight of the bullish long-term picture. This suggests that any dips below $1,720/oz before year-end should provide low-risk buying opportunities, contingent on the metal holding $1,650/oz. However, with many gold producers trading at nearly 10% free cash flow yields and paying annualized dividends above 3.0%, I see much better torque in the miners, given that they seem to be pricing in a $1,550/oz gold price. For this reason, I am maintaining my position in gold, but am more interested in the miners, with two of my favorite ideas being Alamos Gold (AGI) and Agnico Eagle Mines (AEM).

Disclosure: I am long AEM, AGI, GLD

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

GLD shares were trading at $164.38 per share on Tuesday afternoon, up $0.46 (+0.28%). Year-to-date, GLD has declined -7.84%, versus a 17.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Taylor Dart

Taylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...

More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
GLDGet RatingGet RatingGet Rating
GDXGet RatingGet RatingGet Rating

Most Popular Stories on

:  |  News, Ratings, and Charts

10 Best POWR Ratings Stocks

Investors love using our POWR Ratings to track down stocks likely to outperform the S&P 500 (SPY). However, on any given day there are over 1,300 that are Buy rated. This leads customers to reach out to us to discover which are the BEST of these stocks. Today I share the answer including details on the current 10 best POWR Ratings stocks. Get the rest below...

:  |  News, Ratings, and Charts

Are Stocks Ready to Break to New Highs?

The stock market (SPY) is on a 5 day winning streak and now less than 1% away from the all time highs. This quickly shakes off weeks of painful pullbacks and volatility. Is the market truly ready to ascend to new heights or is this another fake out before the next leg lower? Find out the rest below...

:  |  News, Ratings, and Charts

TTSH is this Week’s Featured Stock 

The Tile Shop Holdings (TTSH) is a leading specialty retailer of manufactured and natural stone tiles. The company has staged an impressive earnings turnaround. Read more to find out why the stock is a good buy into year-end.

:  |  News, Ratings, and Charts

Buy These 3 Tech Stocks Before They Soar Further

Tech stocks, which were underperformers at the start of the year, have made their way back as investors have been buying on the dip. Many of these stocks, which include Applied Materials Inc. (AMAT), KLA Corporation (KLAC), and Amdocs Limited (DOX) are currently in an uptrend and are expected to continue this momentum.

:  |  News, Ratings, and Charts

TTSH is this Week’s Featured Stock 

The Tile Shop Holdings (TTSH) is a leading specialty retailer of manufactured and natural stone tiles. The company has staged an impressive earnings turnaround. Read more to find out why the stock is a good buy into year-end.

Read More Stories

More SPDR Gold Shares (GLD) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All GLD News