GDX stock, the VanEck Gold Miners ETF, is Tuesday's IBD Stock Of The Day, as the gold price climbs back above $2,000 an ounce. Renewed momentum for gold came as the stock market's momentum began to reverse and regional bank stocks took a shellacking. GDX is flashing a buy signal.
The sudden shift in the investment backdrop, with the gold price and gold mining stocks getting a safety bid, sent a signal that the arranged sale of First Republic Bank to JPMorgan Chase hasn't brought a clean end to the banking crisis.
GDX was added to SwingTrader on Tuesday.
GDX Stock Rises With Gold
Gold-mining stocks tend to rise or fall with the price of gold, but their moves are more dramatic. That's because lasting gold price moves above or below the cost of production can supercharge or douse profitability.
GDX stock reflects the fortunes of a broad portfolio of miners, led by Newmont, Barrick Gold and Franco-Nevada. Some of the top-rated gold-mining stocks by IBD belong to the VanEck Junior Gold Miners ETF under the GDXJ stock ticker.
However, GDX stock has lagged GLD, the S&P Gold Shares ETF, which tracks the gold price, since August 2020, That's partly because of inflation in the cost of production. Newmont, for example, said Q1 all-in sustaining costs per ounce rose 19% from a year ago in Q1.
Fed U-Turn, Credit Crunch May Be Coming
The Federal Reserve is still expected to hike its key interest rate a quarter-point to a range of 5% to 5.25% on Wednesday. Higher short-term rates create more competition, forcing smaller regional banks to raise their interest rate paid on deposits or face more outflows. Many of these banks already face losses on commercial real estate loans. With the economy and labor market turning soft and high chance of a U.S. recession ahead, banks will be stingier with credit, magnifying the downturn.
The rising gold price looks like a vote that Fed tightening can't be sustained. Suddenly markets are pricing in a quicker Fed U-turn. On Monday, Wall Street was still pricing in about 28% odds of another Fed rate hike in June. In about 24 hours, that has fallen to 0%. Meanwhile, odds of multiple rate cuts before year-end have surged to 90%.
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Gold And The Debt-Ceiling
The fast-approaching debt-ceiling deadline is giving investors another reason to buy gold or gold mining stocks. On Monday, Treasury Secretary Janet Yellen said an agreement to raise the debt ceiling is needed by June 1 to avoid a breach or potential U.S. default.
The last time Congress and the White House flirted with default, back in the summer of 2011, the gold price surged to a then-record $1,920 an ounce.
Worries about the debt ceiling are coming as some of the dollar's underpinnings are getting shaken. The new Cold War with Russia and China is spurring some non-allied foreign central banks to buy gold and sell dollars.
GDX Stock Analysis
GDX stock popped 4% to 34.74 in Tuesday's stock market action. That leaves GDX stock about 4% below a 36.20 buy point from a cup-with-handle base that stretches all the way back to April 2022. Investors also could view the handle as a shelf to a smaller consolidation cleared in early April.
Tuesday's action saw GDX stock move with conviction off its 21-day exponential moving average. At the same time, GDX stock broke clear of a trendline running from its 36.10 handle high on April 13. That flashed an early entry opportunity.
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