After a rough couple months, gold stocks are hunting support.  This battered sector is probing for levels where share demand overtakes supply.  That looks to be close, likely fueling a major reversal back into rallying mode.  As always gold-stock fortunes depend on their metal's, and gold too is actively ferreting out a major support zone.  Accumulating technical evidence suggests it is near last week's correction lows.

The GDX gold-stock ETF dominated by major miners remains this sector's leading benchmark.  But its performance lags the superior GDXJ mid-tiers gold-stock ETF.  The smaller miners are better able to consistently grow their production operating fewer mines, which are often lower-cost and more-profitable than the majors' stables.  Smaller miners' lower market capitalizations also make their stocks easier to bid higher.

So it makes sense to view sector performance through the more-responsive GDXJ lens.  It emphasizes the tough sledding in gold-stock-land in recent months.  GDXJ's latest interim high in late August ran $135.89, following a blistering 48.3% rally in just 1.2 months!  But that powerful surge failed with gold's, forcing GDXJ relentlessly lower over the past nine weeks.  At last Thursday's $99.35 close, this selloff grew to 26.9%.

There's certainly nothing wrong fundamentally with smaller gold miners.  They continue to earn enormous profits with these high prevailing gold prices, leaving their valuations super-low.  GDXJ's components are now collectively trading at an amazing 11.6x trailing-twelve-month price-to-earnings ratio!  So gold stocks are great bargains fundamentally as Q3's earnings season ramps up.  I can't wait to analyze their latest results.

Gold stocks' sole problem in recent months is gold, which overwhelmingly drives their earnings.  During that same late-August-to-late-October span, gold has suffered a 14.4% correction.  It was mostly driven by a mini-mania in Fed-rate-hike expectations fueling a strong US Dollar Index rally, in turn triggering speculator gold-futures selling.  Yet GDXJ's bear-grade losses during gold's correction merely amplified it by 1.9x.

That's actually quite resilient, as the mid-tier and junior gold miners of GDXJ typically leverage material gold moves by 3x to 4x+.  During gold stocks' preceding big-and-fast surge from mid-July to late August, GDXJ leveraged gold's parallel 17.4% rally by a nice 2.8x.  So gold stocks' recent selloff has a clear and incontrovertible driver.  When gold bottoms, reverses, and mean reverts north again, so will its miners' stocks.

That pivotal time looks to be near.  Gold's bottoming process is well underway if not mature, evidenced by a long 18-trading-day span where this metal traded in a tight range between $4,100 to $4,200.  That started in late September and ran into late October.  The longer a price stabilizes following a sizable selloff, the better the odds those support levels will hold.  After nearly a month, gold $4,150ish sure looked rock-solid.

Then last Thursday the 22nd, gold suffered a dramatic overnight breakdown out of the blue.  The most-likely driver was a New York Times article discussing the US and Israel jointly preparing for a third wave of major airstrikes against Iran after US midterm elections.  That would be a huge escalation, both Trump recommitting to his war and Israel rejoining it after largely sitting out from directly hitting Iran since mid-March.

For most of this war, gold has suffered an illogical and unusual backward war trade.  While historically mounting geopolitical tensions and crises have proven very bullish for gold, the opposite has been true through much of this year.  The idea is war escalations drive energy prices higher, upping the US inflation outlook.  That increases Fed-rate-hike odds, helping fuel US-dollar buying which triggers gold-futures selling.

That pounded gold 2.7% lower into a decisive breakdown from its recent low consolidation, and more selling the next day forced gold to a $3,996 close last Friday.  If you look at a gold chart, $4,000ish has held strong as major support for over a year.  Gold carved a major interim low at $3,935 back in early November 2025, another at $3,973 in mid-July 2026, and had plenty of surrounding bottoming closes near $4k.

So $4k last week has a good chance of holding strong again.  Buttressing the gold-finding-major-support-and-bottoming thesis, both mid-July's and late October's gold lows were at extremely-oversold levels.  In mid-July gold fell way back down to just 88.8% of its baseline 200-day moving average.  That was gold's most-extreme oversoldness in fully 9.6 years!  From there gold reversed hard soaring 17.4% into late August.

Last week's latest gold low proved nearly identical, only 0.6% above mid-July's at just 88.6% of gold's 200dma.  That made for a fresh 9.9-year extreme in oversoldness!  When any price is driven to such rare many-year extremes, traders should expect imminent reversals into violent mean reversions.  That sure happened after mid-July's similar lows, and is likely again today.  Gold looks to be finding major support.

And so do gold stocks as this GDXJ chart shows.  Interestingly the mid-tier and junior gold stocks have weathered gold's recent correction-grade selloff relatively well.  In addition to GDXJ's mild 1.9x downside leverage to gold, at worst last Friday GDXJ retreated to levels 8.4% above its mid-July low compared to gold's mere 0.6%!  And just like its metal, GDXJ also looks to be hunting for its own major support zone.

Over the past year or so, GDXJ has carved multiple major bottomings between $90 to $100 per share.  Its midpoint of $95 is the most-obvious major recent horizontal support zone.  GDXJ's closing low in mid-July was $91.66, and it looked to be retesting major support at last Friday's $99.35.  These GDXJ $95ish levels are major support for mid-tier and junior gold stocks, a highly-probable zone for a bottoming and reversal.

But as essentially leveraged plays on gold, gold stocks aren't going to mean revert higher on their own.  They need to follow their metal's lead.  Once gold reverses, GDXJ will scream higher amplifying its gains much like that last episode into late August.  And an impressive array of bullish drivers is amassing behind gold, way beyond its similar technical support levels and oversoldness extremes as its mid-July bottoming.

The primary driver of short-term gold price action is speculators' gold-futures trading.  Due to the extreme leverage inherent in that realm, those guys punch way above their weights in bullying around gold prices.  They can typically run 20x to 25x leverage, granting their trading proportionally-large price impacts on gold.  Their collective positioning in gold futures revealing what they are likely to do greatly affects gold's outlook.

Spec gold-futures positioning is only reported once a week, late Friday afternoon current to the preceding Tuesday.  So the latest-available data when this essay was published was current to October 20th, the Commitments-of-Traders week before gold's low-consolidation breakdown.  Two days before that, total spec long contracts were running just 19% up into their trading range during gold's late monster record bull!

The lower spec longs, the more capital firepower these hyper-leveraged traders have available to flood into gold futures really accelerating gold's gains.  And the less room they have to keep on selling, which ups the odds gold is carving a durable bottom.  And after gold's breakdown, spec gold-futures longs likely fell even lower.  Every Friday at 3:30pm I eagerly digest that CoT data, then analyze it in our newsletters.

In addition to gold-futures speculators being set up to do big gold buying catapulting it higher, gold's other major driver is capital flows from American stock investors.  They command the largest pools of capital in the world far, and their buying usually fuels gold's mightiest uplegs and bull markets.  What they are doing is evident in the combined holdings of the world-dominant American GLD, IAU, and GLDM gold ETFs.

Despite gold's 14.4% correction over the past couple months, GLD+IAU+GLDM have enjoyed holdings builds in 14 of the last 15 CoT weeks into that latest October 20th data!  That proved an extraordinary streak of buying, capital inflows into gold.  And out of those 14 recent holdings-builds weeks, that latest-reported one before gold's breakdown was the third-largest of the bunch climbing 0.5% during that CoT week.

If American stock investors continued gradually migrating capital into gold during its larger correction, just imagine how they'll rush to buy once gold reverses on futures buying.  Most investors aren't contrarians, they love chasing winners and piling into strong upside momentum.  So capital inflows into the major gold ETFs are likely to explode higher amplifying gold's gains once that probable reversal gets decisively underway.

But wait, there's more!  Everything in the markets is pendulum-like, perpetually oscillating back and forth from one extreme to the opposing one.  Herd greed and fear are the most-obvious example, traders get really excited and bullish near major toppings then really scared and bearish near major bottomings.  Gold has ridden a violent sentiment roller coaster this year to two greedy toppings and two fearful bottomings.

Obviously we're back in that latter fear zone following gold's correction and breakdown, with bearishness abounding.  The only thing that will swing that sentiment pendulum back is a major rally.  But other things like traders' federal-funds-rate-trajectory expectations and the US dollar which drives gold-futures trading also oscillate between extremes.  And both are overdue to swing back the other way, igniting gold-futures buying.

The mini-mania in Fed-rate-hike odds has been incredible, among the most extreme I've ever witnessed.  Gold's correction ignited in late August after Trump's new Fed chairman talked a big game about fighting inflation at the Fed's annual Jackson Hole economic symposium.  Just before that, federal-funds futures had been pricing in a 35% chance the FOMC would hike by 25 basis points at its mid-September meeting.

Yet just two weeks later right before that, those odds had skyrocketed to 91%!  A big upside surprise in monthly US jobs contributed, as did CPI and PPI inflation data released in that span.  But once everyone expects the Fed to keep hiking indefinitely, that's an extreme arguing expectations need to mean revert back the other way.  Traders still expect three more 25bp Fed rate hikes into the middle of next year.

Something is going to change that, maybe major US economic data like downside surprises in monthly jobs or cooler-than-expected inflation reports.  Traders all crowding the rate-hike side of the boat will have to move back towards the middle.  As recent extreme Fed-rate-hike expectations wane, the overextended US Dollar Index will fall driving gold-futures buying.  Lopsided extremes in traders' outlooks never last long.

Layered on top of all that is gold's strongest season of the year just getting underway.  That is its winter rally running from early October to late February in modern gold-bull years.  Gold stocks follow their metal higher from late October to late February, and November has proven their best month of the year seasonally.  While seasonals don't drive price action, when aligned they act like tailwinds further amplifying it.

Once gold decisively bounces and starts mean reverting higher out of its major support zone, the gold stocks will dutifully follow and leverage their metal's gains.  So gold stocks' support hunt ought to be mostly over, GDXJ is retesting its major support zone.  That portends a big-and-fast rebound rally out, maybe rivaling GDXJ's blistering 48.3% surge over 1.2 months into late August.  So prepare your portfolio for that.

Gold's sizable correction in recent months has proven hard on its miners' stocks, driving trades back down to stop-losses.  But with gold's near-term outlook so bullish at its own major support zone, traders need to be refilling their gold-stock positions.  That's exactly what we've been doing in our subscription newsletters, aggressively adding trades in great fundamentally-superior mid-tier and junior gold miners.

Successful trading demands always staying informed on markets, to understand opportunities as they arise.  We can help!  For decades we've published popular weekly and monthly newsletters focused on contrarian speculation and investment.  They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what's going on in the markets, why, and how to trade them with specific stocks.

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The bottom line is gold stocks are hunting support.  They have suffered a rough couple months as gold was forced into a correction by an extreme swing in Fed-rate-hike expectations.  That hammered both gold and gold stocks back down to major support zones established over the past year or so.  They are likely to bottom around here, then mean revert higher in big-and-fast rebound rallies as usual out of lows.

Gold stocks finding support and reversing is dependent on gold, and an impressive array of bullish factors is aligned behind the metal.  Gold-futures speculators are positioned for big leveraged buying, while American stock investors have been buying on balance for months despite gold's correction.  Once gold turns north decisively, those capital inflows will intensify accelerating gold's gains which gold stocks will leverage.

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