We are approaching a “back up the truck” moment for the gold sector.

After Wednesday’s thrashing, the Market Vectors Gold Miners Index (GDX) is down 13% for the year. Meanwhile, gold itself is up about 15%. In fact, most gold stocks are trading at the same levels they were two years ago, when gold was $1,200 per ounce. So while gold has gained more than 33%, gold stock investors don’t have anything to show for it.

That may be about to change.

Look at this chart of the Gold Miners Bullish Percent Index (BPGDM)…

This chart illustrates the percentage of gold stocks trading with bullish chart patterns. It’s a measure of overbought and oversold conditions. Gold stocks are overbought – and subject to a correction – when the BPGDM rallies above 80 (meaning 80% of the stocks in the sector are trading in bullish technical patterns). The stocks are oversold when the BPGDM dips below 30. And the chart generates a buy signal when it turns higher from oversold conditions.

[ad#Google Adsense 336×280-IA]The two previous buy signals on the chart generated fast gains. GDX rallied 30% in three months after the buy signal in February 2010. And it gained 20% in two months after the buy signal this past July.

We got another buy signal from this indicator last week. This time, though, gold stocks are even more oversold than they were during the previous two buy signals. And relative to the price of gold, stocks are even more compelling bargains.

Gold stocks are notoriously volatile. So it isn’t easy trying to hold positions through violent declines, like we’re seeing right now in the sector. It’s even harder to step in and buy the stocks in the face of such massive selling pressure.

But the idea is to “buy low,” so you can later “sell high.” Right now is the best opportunity I’ve seen in two years to “buy low” in the gold sector.

Best regards and good trading,

— Jeff Clark

[ad#jack p.s.]

Source:  The Growth Stock Wire