Traders take note: Gold stocks are ready to "rip" higher…

Longtime readers know we're fans of trading gold-mining stocks. Gold miners aren't great businesses to hold for the long term. But they do experience short-term booms and busts… which can be traded for quick profits.

The right time to buy gold stocks is when everyone hates them… and when they are "overstretched" to the downside. The sector is down 20% from its September high… and many of the "golds" are hitting 52-week lows. The sector is hated. And as you can see from the chart below, it's overstretched to the downside.

Today's chart shows the ratio of the big gold-stock fund (GDX) against the price of the big gold bullion fund (GLD). The declining line shows gold stocks are getting cheaper relative to gold itself. Due to the recent selloff, gold stocks have hit a multi-year low against gold. It's just a matter of time before they "pop" back higher.

– Brian Hunt