Mapping the Market: Gold miners' rally may have further to run
GDX•Gold miners rally on rate-cut bets
Shares of gold mining companies have surged this month, boosted by growing bets that the Federal Reserve will hold off on further interest rate increases, and technical analysts say the rally could still have room to extend.
Chart signals point to further upside, but risks remain
The breakout in the VanEck Gold Miners ETF (GDX) began when prices burst out of a falling wedge pattern, a formation typically seen at the end of a downtrend that is considered a bullish signal. A falling wedge is made up of two converging trend lines connecting a series of highs and lows. The breakout suggests selling pressure has dried up and buyers are starting to accumulate positions. Notably, GDX broke out just as the two trend lines were about to converge, which technical analysts view as adding credibility to the signal.
The ETF's advance from a low of 69.74 on July 17 to a high of 92.66 on August 12 allows chartists to calculate a "measured move," projecting the next target in the area around 110.50-111.00, with potential stopping levels at 99.05 and 105.98.
Still, there are signs the rally may need to catch its breath. GDX has halted before hitting the 93.46 level marking the 50% retracement of its March-July decline, according to data supplied by LSEG. Traders watch retracement levels for potential pausing points. The daily Relative Strength Index was recently in overbought territory, hinting at a possible pause, though not necessarily an end to the uptrend.
A drop below the 78.5/80 area, however, where a cluster of past highs and lows forms structural support, would call the bullish case into question.
What the chart shows:
- Breakout from a falling wedge pattern signals bullish reversal
