Trading Gold Miners as Yellow Metal Continues Explosive Rally

Shares of gold miners are exploding higher as gold prices continue to rally. Here's where the upside extensions come into play, as well as support.
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A case of the Mondays isn’t going to slow down gold and silver prices. The precious metals jumped again as buyers continued to bid up these commodities.

Gold futures opened slightly higher but investors currently find the metal higher by more than 2% and hitting new records.

Silver had a similar open but are now rocketing higher by about 7%. That adds to its 15.6% gain last week, as both metals look to climb for the eighth straight week.

I covered gold and silver earlier in July. As the rally finally got going, we warned traders that the move could be intense to the upside as buyers started to pile in.

With the metals becoming overbought and as they hit a few of the upside extensions, it would be wise to book some profits at this point. From here, there’s no telling whether they continue to surge even higher or if the metals will consolidate these recent gains.

In that respect, let’s look at another aspect to the gold trade: the miners.

Trading Gold Mining Stocks

Daily chart of the GDX ETF.

Daily chart of the GDX ETF.

The simplest way of trading the miners is the VanEck Vectors Gold Miners ETF  (GDX) - Get Report. For those that prefer the smaller market cap miners, they can opt for the junior miners via the VanEck Vectors Junior Gold Miners ETF  (GDXJ) - Get Report.

On the chart above, you may notice that the GDX moves more than gold prices. Surprisingly though, the miners ETF isn’t as overbought as one would think. At least according to the modest RSI reading circled in blue on the chart above.

In any regard, this name has been red hot, rising for eight of the past 10 trading sessions now with Monday’s big gap up.

Should shares cool off, I have three main areas of interest. The first is the 161.8% extension near $41.50. If that mark holds as support, it keeps a retest of Monday’s high on the table.

If the GDX continues higher and clears Monday’s high — with or without a pullback — the two-times range extension is technically in play at $47.50.

Beyond the 161.8% extension acting as support, the 10-day and the 10-week moving averages are on my radar. Those come into play at $40.74 and $37.85, respectively.

Obviously gold prices will be the underlying driver for the miners, so keep both prices up on your screen if you plan to trade the GDX.