Gold holds a unique position as an asset that is both a commodity and a financial asset. It is a timeless and forever asset, with all the gold ever mined in the world’s history still in existence today. The allure of gold has sparked numerous gold rushes throughout history, including the famous California gold rush that began in 1848. This event attracted around 300,000 people from various countries seeking their fortunes, ultimately leading to California’s statehood. The modern-day gold rush is seeing miners scouring the world for gold in hopes of capitalizing on its current high prices.
Despite the soaring prices of gold, junior mining companies have struggled to follow suit and have underperformed in the recent bull market. The VanEck Junior Gold Miners ETF (GDXJ) is a product that includes companies involved in the exploration for gold in regions where mining licenses are permitted. However, the ETF has not kept pace with the rising gold prices in recent years. Despite reaching record highs in the gold market, the junior mining stocks still lag behind, reflecting a bearish trend.
Rising inflation and higher interest rates have led to increased production and exploration costs for mining companies. This has significantly impacted profit margins, making it more challenging for junior mining companies to pursue new projects. Additionally, state-run entities in countries such as China and Russia have also impacted the ability of junior mining companies to thrive in the gold market.
Looking ahead to 2024, various factors could potentially drive gold prices higher, including geopolitical uncertainty, stable to lower interest rates, and declining confidence in fiat currencies. If gold prices experience a significant rally, it could prompt a modern-day gold rush, causing investors to turn to junior mining companies. This in turn could lead to a potential lifting of the GDXJ ETF, which has been exhibiting a bearish trend since 2020.
The GDXJ currently remains below the midpoint of critical support and resistance levels, with technical support at the September 2022 low and resistance at the April 2023 high. In order to reverse the trend of underperformance by junior gold mining stocks, a significant and potentially parabolic move in gold prices would be required over the coming weeks and months. In conclusion, while gold prices have reached new record highs, the junior mining companies have not fully capitalized on these gains, indicating the continued struggle in the gold market for these companies.
