Gold’s 2021 spring rally will likely both start earlier and grow...

Gold’s 2021 spring rally will likely both start earlier and grow bigger than normal, as seasonality mean reverts and overshoots after the recent counter-seasonal correction. Gold needs to see some outsized spring-rally gains to catch up with where it ought to be per seasonal norms. By early June, gold tends to be up 7.4% YTD in seasonal-average terms. Rebounding back to there would boost gold up near $2,038!
If anything remotely close to that happens, this is a super-bullish omen for gold stocks in coming months. Their own spring seasonal rally is directly driven by gold’s.
Like gold, the gold stocks are set up for a much-larger-than-normal mean-reversion-and-overshoot spring rally. Normally this sector surges 13.2% higher between mid-March to early June, really amplifying gold’s own anemic 3.8% spring rally.
GDX would have to power 25.6% higher from this week’s levels to hit its normal early-summer gains in seasonal terms. With the large gold stocks’ typical 2x-to-3x leverage to major gold moves, those kinds of GDX gains would only need a 9%-to-13% gold spring rally. That is right in line with what is likely if gold itself mean reverts seasonally after its recent correction. The coming months look really bullish for this sector.
Because of the recent gold and gold-stock corrections, and subsequent long bottomings and basings, sector psychology is really bearish. Traders are seriously pessimistic on gold stocks, expecting to see them keep spiraling lower with the metal they mine. This is the perfect sentimental backdrop to birth a major new bull-market upleg! Everyone susceptible to being duped into selling low is out, leaving only buyers.
Bearish traders are overlooking fantastic fundamentals for the gold miners. Their Q4’20 earnings season underway is likely to prove their most profitable ever as a sector. The GDX-top-25 gold miners dominating that ETF and the HUI are likely to report unit profits soaring around 65% year-over-year! That will make for their sixth quarter in a row seeing 50%+ YoY growth! The gold miners are thriving with higher gold levels.
Add in that seasonal-mean-reversion dynamic after this sector’s winter rally failed due to that correction, and those 22%-to-33% spring-rally gains in GDX aren’t a stretch at all. If gold stocks’ next upleg really gets humming, powering higher attracting in lots of capital, 50%+ is possible! Last year’s spring rally saw GDX skyrocket 79% higher, although much of that was anomalous rebounding out of a rare stock panic.
This year’s spring-rally upside potential is much bigger than usual. After a correction steamrolled their winter rally, the gold stocks are way behind seasonally. That positions them for a major mean-reversion surge on very-bullish sentiment, technicals, and fundamentals. The strong spring seasonals should act as a stiff tailwind accelerating gold stocks’ gains in their next upleg. This is one heck of a spring-rally setup!
http://www.zealllc.com/2021/gssprrl6.htm