'Bearish engulfing' patterns are warning you: Don't buy the dip in gold-miner stocks

MarketWatch

By Tomi Kilgore

A reversal pattern in a gold miner ETF, and in the stock of sector heavyweight Newmont, warns investors not to buy the dip

A bearish technical pattern that appeared in a widely traded gold-mining ETF is warning investors to think twice before buying the dip.

The sharp selloff in gold-miner stocks on Friday may leave investors asking themselves whether they should use it as an opportunity to buy on the cheap. Here's why the charts say no.

While gold's (GC00) rally to record prices topping $5,500 an ounce grabbed the headlines, the gold-miner sector outperformed the metal by a wide margin. Over the past 12 months, the VanEck Gold Miners ETF GDX has soared 139%, while the SPDR Gold Shares exchange-traded fund GLD climbed 72.4%.

The idea was that at current prices, gold-miner profits would increase faster than gold prices.

But on Friday, GLD dropped 10.3%, while GDX tumbled 12.8% - its biggest one-day selloff since the height of the pandemic panic in March 2020 - with all of its U.S.-listed stock components trading lower.

Trading volume for GDX, which many technicians see as a sign of validation, swelled to more than 100 million shares on Friday, more than four times the daily average.

The fundamental reason given for the selloff appeared to be that President Trump's pick of Kevin Warsh to be the next chair of the Federal Reserve prompted a big bounce in the U.S. dollar DXY, which is viewed as bearish for commodities such as gold and silver (SI00).

But Friday's GDX selloff isn't what should make buyers think twice, or worry those who already own gold-miner stocks. The real technical trouble started a day earlier for the GDX ETF, as well as for a number of its components - the biggest being Newmont (NEM).

On Wednesday, GDX opened at $110.38 and closed at a record high of $112.16. Then on Thursday, the stock opened further in record territory at $113.29, but quickly reversed course to end the day at $107.98, or well below Wednesday's open.

For those who use candlestick charts, which were developed centuries ago in Japan, that pattern is referred to as a "bearish engulfing." The idea of the pattern is that Thursday's open marked a buying climax, allowing bears to launch a successful counterstrike.

Followers of Western charting styles will often refer to the same pattern as a "key reversal day."

Whatever you call it, it warns of a reversal in trend.

So the sharp selloff on Friday is actually viewed as confirmation of the bearish call; if bulls had much fight left in them, the GDX ETF wouldn't have fallen so much.

And it's not just the GDX chart in which the pattern appeared.

The stock chart of Newmont - GDX's largest component with a market capitalization of $124.5 billion - also saw a bearish engulfing appear on Thursday. So did the chart of the fund's second-biggest component, Agnico Eagle Mines (AEM), with a market cap of $96.7 billion.

In all, nine of the GDX ETF's 22 U.S.-listed components saw similar bearish engulfing patterns form on Thursday, after record closes on Wednesday. Two others saw the pattern appear on Monday.

As with any technical pattern, the calls they make are never perfect. But at the very least, investors should think twice about buying the dip, and wait for another sign that suggests bulls have regained their strength.

Don't miss: 7 key candlestick reversal patterns.

Some downside price levels for GDX to keep an eye on for potential support signals start at just below $90, where the 50-day moving average ended on Friday. That's a widely followed short-term trend tracker that has helped halt pullbacks in late October and early November, as well as in July.

Below that, the $84 to $85 level could provide support, as that marked a battleground between bulls and bears - acting as resistance on the way up and support on pullbacks - from mid-October through the end of December, just before GDX took off in early January.

-Tomi Kilgore

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Is an Options Frenzy Driving Gold's Wild Moves? — WSJ

Dow Jones Newswires

00280

-1.85%

By Gunjan Banerji

The wild swings in precious metals have been accompanied by a record mania in options.

Gold prices lurched past $5,000 for the first time ever and continued their ascent for much of this week. Today, they plunged 11%, the biggest one-day fall since 1980.

The historic dash into exchange-traded funds that track gold alongside record activity in derivatives may be exacerbating these sharp swings. More than two million call options contracts tied to one of the largest exchange-traded funds tracking gold changed hands Wednesday, the highest level ever, according to Cboe Global Markets data.

These trades have at times exacerbated volatility in the stock market while activity in options has boomed in recent years. For example, that was the case during the meme-stock craze of 2021, when GameStop and AMC Entertainment shares swung wildly.

The options market has smashed records since 2021 and looms larger than ever in global financial markets. Now, the mania may be spreading to the metals market.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

Risk Warnings and Disclaimers

Add to Favorites

Is an Options Frenzy Driving Gold's Wild Moves? — WSJ

Dow Jones Newswires

00280

-1.85%

By Gunjan Banerji

The wild swings in precious metals have been accompanied by a record mania in options.

Gold prices lurched past $5,000 for the first time ever and continued their ascent for much of this week. Today, they plunged 11%, the biggest one-day fall since 1980.

The options market has smashed records since 2021 and looms larger than ever in global financial markets. Now, the mania may be spreading to the metals market.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

Risk Warnings and Disclaimers

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SolGold Board Backs Sweetened $1.13 Billion Takeover Bid From Jiangxi Copper

Dow Jones Newswires

By Megan Cheah

Chinese state-owned miner Jiangxi Copper has won the support of SolGold's board after making a sweetened $1.13 billion bid for the U.K.-listed company backed by BHP and Newmont.

After two prior bids were rejected, Jiangxi's revised takeover offer has cleared the board hurdle, bringing it one step closer to the finish line.

Jiangxi upsized the deal terms to 28 pence per share of the mineral exploration company, a 7.1% premium to the stock's price before the initial proposal was disclosed, and an increase from the 26 pence offered previously.

The non-binding offer values the U.K.-listed company at 842 million pounds, or about $1.13 billion, Jiangxi and SolGold said in a joint statement Friday.

SolGold's board said it "would be minded to recommend" that shareholders vote in favor of the deal if Jiangxi makes a firm offer by the Dec. 26 deadline.

So far, shareholders holding nearly 41% of SolGold have said they intend to support the deal.

These include BHP Billiton--a unit of mining giant BHP Group--and gold miner Newmont. SolGold's co-founder, Nicholas Mather, is also backing the revised proposal, Friday's statement showed.

Jiangxi currently owns 12.2% of the issued shares of SolGold, which specializes in gold and copper mining, and has operations in Latin America.

The development comes after SolGold's board rejected Nanchang-based Jiangxi's previous two proposals in November.

SolGold's London shares last closed 8.7% lower at GBP25.75. Jiangxi's Hong Kong and Shanghai-listed shares were up 1.4% and 0.7% respectively in early trade on Monday.

There has been a flurry of dealmaking in the mining sector, fueled in part by companies' push to secure supplies of copper, a key component in sectors from data centers to electric vehicles.

In September, Anglo American and Teck Resources agreed to a merger that will create one of the world's biggest copper producers in one of the largest-ever deals in the mining industry.

Write to Megan Cheah at megan.cheah@wsj.com