3 charts that paint a picture of a sector that has experienced a tidal wave of fund flows during the first half of 2016 as valuations in the gold mining sector have moved from extreme undervaluation to a mild overvaluation just as the gold mining shares reach a crucial level of resistance and a key Fibonacci level:
- A record pace of fund flows into GDX/GDXJ have occurred during the first half of 2016 as total assets in GDX/GDXJ sit at or slightly above the previous peak reached in late 2012 following the Fed’s QE3 announcement.
- Gold mining equities currently sit at a ~12% premium to net asset value after starting the year at a more than 40% discount to NAV.
- The HUI (Arca Gold Bugs Index) has reached an area of technical importance near previous resistance and the 38.2% Fibonacci retracement of the entire 2012-2016 cyclical bear cycle decline.
Make no mistake the huge fund flows into the gold mining sector are a bullish omen, however, with the sector at key long-term technical resistance and suddenly having moved into a modest overvaluation investors should prepare for gains to be a bit harder to come by from here.
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