The U.S. 10-Year Real Yield Hits Its Highest in Over a Decade

Real Problems

With gold and mining stocks enjoying oversold bounces on Sep. 27, the pace of the PMs’ recent drawdowns was poised to normalize at some point. Also, since asset prices don’t move in a straight line, daily declines of 1% or more often result in countertrend rallies along the way.

However, with the PMs’ medium-term technical and fundamental outlooks supremely ominous, a hawkish Fed, higher real yields, and a stronger USD Index are poised to inflict more pain. To explain, I wrote on Apr. 11:

With real interest rates poised to turn positive in the coming months, gold should suffer profoundly once its war premiums unravel. 

The historical fundamental playbook shows:

  1. When a crisis erupts, the Fed cuts interest rates and commences QE;
  2. Real yields turn deeply negative;
  3. Gold rallies sharply;
  4. The Fed normalizes monetary policy, real yields surge, and gold plunges.

Please see below:

To explain, the gold line above tracks the price tallied by the World Gold Council, while the red line above tracks the inverted U.S. 10-Year real yield. For context, inverted means that the latter’s scale is flipped upside down and that a rising red line represents a falling U.S. 10-Year real yield, while a falling red line represents a rising U.S. 10-Year real yield. 

Moreover, while I’ve shown variations of this chart before, the long-term implications are profound. For example, if you analyze the left side of the chart, you can see that the U.S. 10-Year real yield soared and gold plunged during the global financial crisis (GFC). However, when the Fed launched QE and the U.S. 10-Year real yield sank to an all-time low, gold hit a new all-time high along the way. 

Furthermore, the current situation is a spitting image. When Fed Chairman Jerome Powell performed a dovish pivot in late 2018, the U.S. 10-Year real yield suffered. Then, when the Fed fired its liquidity bazooka in March 2020, it pushed the metric to another all-time low. And surprise, surprise, gold hit another all-time high.

However, we’re now in stage four of the historical fundamental playbook. With the Fed normalizing policy, the U.S. 10-Year real yield has surged in recent weeks. Moreover, the Fed needs to push the metric above 0% to curb inflation. 

To that point, with long-term Treasuries continuing their sell-offs on Sep. 27, the U.S. 10-Year Treasury yield closed at another 2022 high of 3.97%.

Please see below:

More importantly, the U.S. 10-Year real yield ended the Sep. 27 session at 1.64%, its highest level since 2010. Therefore, my prediction has proved prescient, even though gold has been a relative outperformer amid the chaos.

Please see below:

To explain, the U.S. 10-Year real yield is at its highest level in a decade-plus, while gold is relatively uplifted. Furthermore, a U.S. 10-Year real yield of 0% implies a gold price of $1,500, while the current reading of 1.64% should have gold south of $1,300.

So, what gives?

Well, for one, it’s not uncommon for assets to operate with a lag, meaning that gold will reconnect with the U.S. 10-Year real yield at some point, only the timing remains uncertain. As evidence, remember when I presented this chart throughout 2021 and 2022?

To explain, the green line above tracks the U.S. 10-Year Treasury yield, while the red line above tracks the U.S. 10-Year breakeven inflation rate. The unprecedented gap on the right side of the chart shows how a low nominal rate (the green line) and a high breakeven rate (the red line) created a major imbalance and pushed the U.S. 10-Year real yield into deeply negative territory. For context, the latter sank to an all-time low of -1.17% in August 2021 and hit -1.04% on Mar. 8 during the Russia/Ukraine conflict.

However, significant imbalances don’t last forever. In fact, if you analyze the middle of the chart, you can see that the two lines reconnected after the 2013 taper tantrum and remained in contact for years after that. Therefore, when the U.S. 10-Year real yield hit 0% in April 2022, the reconnection was complete, and the 2020-2022 imbalance was erased.

As such, we find ourselves in an identical situation now. While gold has outperformed the U.S. 10-Year real yield, the pair should reconnect once again; and with the Fed forced to play catch-up due to 40+-year high inflation, gold is much more likely to collapse than the U.S. 10-Year real yield. Remember, I wrote the Fed needs to push the metric above 0% to curb inflation.

However, there is no magic real yield that sinks inflation. In reality, the Fed needs to keep pushing the metric higher until progress materializes. Moreover, I noted that Powell understands this and made the point for me during his June FOMC press conference.

Please see below:

Source: U.S. Fed

Thus, while Powell has achieved his objective of “positive real rates across the [yield] curve,” it only matters if real rates are high enough to reduce demand and alleviate inflation. If not, they need to go higher.

To that point, with the Cleveland Fed projecting the headline and core Consumer Price Indexes (CPI) to rise by 8.20% and 6.64% year-over-year (YoY) in September, the metrics are nowhere near normalized. As a result, the U.S. 10-Year real yield has the wind at its back, and gold should fall to restore the imbalance.

Please see below:

Source: Cleveland Fed

Also, please note that while gold has showcased immense resiliency in the face of elevated real yields and a soaring USD index, the GDXJ ETF hasn’t been so lucky.

Please see below:

To explain, the gold line above tracks the gold futures price, while the black line above tracks the GDXJ ETF. If you analyze the relationship, you can see that the pair remained close pre-pandemic. Conversely, with the junior miners materially underperforming gold post-pandemic, shorting the GDXJ ETF has proven profoundly wise and lucrative, as the junior miners have followed the real-yield roadmap to a greater extent.

In addition, the USD Index paints a similar portrait.

Please see below:

To explain, the gold line above tracks the gold futures price, while the black line above tracks the USD Index. If you analyze the middle of the chart, you can see that when the USD Index hit its ~2017 high, gold sank below $1,200.

However, while the USD Index closed well above its ~2017 high on Sep. 27, the yellow metal is much higher.

In contrast, the GDXJ ETF’s price action has been more formulaic.

Please see below:

To explain, the gold line above tracks the GDXJ ETF, while the black line above tracks the USD Index. If you analyze the right side of the chart, you can see that the junior miners’ Sep. 27 closing price is much nearer the low set when the USD Index hit its ~2017 high. Thus, it’s another example of why choosing the right asset to short is just as important as being correct in your investment thesis.

Hawk Talk

With Fed officials back to parroting Chairman Jerome Powell’s future plans, his deputies reiterated his hawkish message. For example, Cleveland Fed President Loretta Mester said on Sep. 26:

“We have to understand that inflation is going to be continuing to be hard to predict (…). We can’t have wishful thinking replace really compelling evidence. So before I conclude that inflation has peaked, I will need to see several months of declines in the month-over-month (MoM) readings.”

As a result, Mester was ominously honest about the economic challenges that lie ahead.

Please see below:

Source: MarketWatch

Likewise, St. Louis Fed President James Bullard said on Sep. 27:

“[Inflation] is a serious problem and we need to be sure we respond to it appropriately. We have increased the policy rate substantially this year and more increases are indicated.”

He added that the U.S. federal funds rate (FFR) may need to reach “the 4.5% range,” as inflation is more resilient than Fed officials expected. As such, with the U.S. labor market on solid footing, officials remain focused on the other half of their dual mandate.

Please see below:

Source: Bloomberg

Finally, Chicago Fed President Charles Evans said on Sep. 27 that “My own viewpoint is roughly in line with the median assessment” from the Summary of Economic Projections (SEP).

“I had a sobering assessment that we’ve got more work ahead,” Evans said. “I’m optimistic that the peak that we’ve set out is going to be sufficiently restrictive that it could be enough.”

Thus, while I warned for months that reality would re-emerge, suddenly, a 4.5% FFR is the low-end of the consensus range.

Source: Reuters

The Bottom Line

While gold has relatively outperformed the U.S. 10-Year real yield and the USD Index, the GDXJ ETF has not. Moreover, the prior imbalance between the U.S. 10-Year Treasury and breakeven inflation rates is a cautionary tale of how history is undefeated. Therefore, the yellow metal should reconnect with the U.S. 10-Year real yield at some point, and we expect the normalization to occur through lower gold prices.

Furthermore, with Fed officials hawked up and pressing ahead with further rate hikes, the medium-term outlooks are bullish for the USD Index and the U.S. 10-Year real yield. Absent short-term sentiment rallies, gold, silver, and mining stocks should struggle in the following weeks and months.

In conclusion, the PMs were mixed on Sep. 27, as silver ended the day in the red. However, while oversold conditions may provide some short-term relief, the medium-term implications are unchanged: the precious metals remain in downtrends, and the technicals and the fundamentals signal lower lows in the months ahead. While I’m not making any promises with regard to price moves or profitability, in my opinion, the above also indicates that profits on our short positions in junior mining stocks are going to increase even further.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Gold Waved the White Flag and Began Its Great Decline

It’s happening! The massive upswing in the USD Index and the slide in the precious metals market are here.

Just like you knew in advance. I’m receiving multiple messages where you’re sharing your gratitude with me, and I’m extremely happy that you’re enjoying the results that you were able to get thanks to my help.

All right, what’s next?

First of all, I would like you to keep perspective.

The huge slide that we saw on Friday is most likely just a first step lower. A big step, but just the first one, nonetheless.

Here’s how the situation looks from a long-term point of view.

The Big Picture

Gold is below its previous lows but not significantly so. Neither the RSI nor MACD indicators suggest that the decline is over – based on the analogy to 2013 that I described more thoroughly on Friday (and in many previous analyses – you knew about this analogy’s existence for months).

Here’s what the situation looks like in the case of the HUI Index – a proxy for gold stocks.

After the breakdown below the long-term support line (based on the 2016 and 2020 bottoms), gold stocks consolidated a bit. This means that the breakdown was verified. This, in turn, opened the door wide open for more significant declines.

Therefore, the fact that miners just declined significantly on Friday – and moved to new yearly lows – is not surprising. It’s a perfectly normal consequence of the breakdown, and something that’s in perfect tune with the analogy to 2013 (and to a smaller extent with the analogy to 2008).

As we zoom in, you can see how big Friday’s daily decline really was.

The Little-Huge Detail

Will we get a temporary correction from the current levels?

We might, or we might not. I previously planned to take profits at – more or less – current price levels, but I dropped this idea based on the fact that we’ve already seen two corrective upswings from below $30 in the GDXJ.

Without those two previous corrections, seeing a correction now would have been very likely. However, they did happen, so now it’s relatively unclear if we’re going to see a corrective bounce or not.

There’s an old Wall St. saying “when in doubt, stay out,” but what most people miss about this saying is that it makes sense as long as one is thinking about a single time-frame. In this case, it is the very short-term outlook that is unclear (next several days or so), and as a consequence, I’m not participating in a very short-term trade.

However, the short-term / medium-term oriented trade – the one that’s based on the likely biggest part of the current decline in the precious metals market is very likely to continue. Consequently, I’m remaining on the short side of the precious metals market, and even if we see a corrective upswing here, I won’t mind that.

Not every correction / price move is worth trading – only those with very favorable risk-to-reward ratios. In this case, the corrective bounce ratio is not that favorable. Our profits this year are already huge, so waiting out a relatively short period before they increase even more (of course, I’m not promising any kind of performance) should be rather easy.

Instead of a small corrective upswing, we might see a sharp drop to $20. Missing huge profits on the latter would be much worse than having to wait out a very short-term correction.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Let’s Go Back to 2013 and Take a Look at the GDXJ Bearish Clues

Silver’s previous quick run-up fooled many, but you weren’t caught off-guard, and yesterday’s decline didn’t surprise you. If so, congratulations!

Time Travel

Today, I would like to show you how the GDXJ (a proxy for junior mining stocks) is repeating its 2013 performance, and I want to emphasize just how bearish the implications are.

Here’s what the GDXJ did in 2013.

Right before the April 2013 plunge, the GDXJ corrected about half of the preceding short-term rally, and it moved above its most recent short-term low. This rally was relatively quick.

Then the decline started, but it was not huge at first. However, it took only a few days for the pace of decline to pick up, and shortly after the GDXJ moved below its recent lows, it truly plunged. The slide was also huge in the rest of the precious metals sector.

The GDXJ declined in a major way, and it formed a short-term bottom once it doubled the initial decline. I marked this with the green Fibonacci extension tool. The initial decline is 50% of the entire decline (approximately), which means that the latter was twice as big.

What does this imply for the current situation?

First of all, it implies that the analogy to 2013 remains intact.

Second, it implies that – based on the size of the recent decline – the GDXJ is likely to decline until it moves below $22 or so. Given the proximity of the 2020 lows that are just below $20, and the fact that right now there are more factors that are happening outside of the precious metals market that favor lower junior miners’ (and gold) prices, I wouldn’t be surprised to see the GDXJ bottom close to its 2020 low (or even slightly below it), and not slightly above the green target provided by the doubling-the-previous-decline technique.

Those “other factors” are the soaring USD Index, declining stock market prices, and rising interest rates.

The Only Way Is Down

Besides, the above is very much in tune with what I’ve been writing about for months. I’ve been emphasizing that the return to the 2020 target (or lower, perhaps much lower) is likely for mining stocks. Now, we even have even the short-term confirmation of this scenario.

Moreover, please note that yesterday’s almost 5% decline caused the tiny breakout above the declining, medium-term resistance line to be invalidated. Invalidations of breakouts are immediate sell signs.

The additional implication of the recent rally is that since it happened, it’s no longer likely that we will see a rebound from the ~$26-27 area. Why? Because we already saw one recently, and based on the analogy to 2013, what was likely to happen already happened. Sure, there are no certainties in any market, and there might indeed be a correction in this area, but it’s not likely, let alone very likely, that it’s going to take place.

All in all, it seems that the downtrend continues, and that it’s the final time to make sure one is prepared to take advantage of the upcoming big slide. Of course, I can’t promise any kind of performance or profitability, but in my opinion, it does seem likely that the next big move lower will be truly epic.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

The USD Fell on Ukraine’s Success News. How Did Gold React?

Looking at an individual tree (daily session) is exciting. Especially if the tree (profits on a trade) is growing day by day. However, it is looking at what the forest (the broad perspective, general trends) does that makes one’s portfolio grow over time.

Two Keys

While I provided a lot of context in Friday’s flagship analysis, in today’s analysis, I will focus on two key long-term developments that are extremely important but that don’t get enough emphasis.

The first one is in gold stocks, and the second is in the USD Index.

Starting with the latter, the key thing is that the USD Index is after a breakout above the previous highs, and while it just invalidated the short-term breakout, it continues to trade in a mirror-like pattern to what happened in 2002 and 2003.

Back then, the corrective pause took quite a while before the movement continued. Due to sharply rising interest rates, it doesn’t have to be the case this time . However, even if the USD Index once again moves to the 104-105 area, the medium-term outlook will still remain very bullish.

Is it likely to happen?

Not necessarily.

From the short-term point of view, the USD Index declined substantially today (likely the safe-haven demand decline based on the counter-offensive in Ukraine, which suggests that the war might be close to its end, and Russia could be on the losing side thereof), and it’s about to reach its rising support line.

This line kept the declines in check for months, so it’s quite likely that it will stop the declining prices also this time.

While the USD Index declined substantially in today’s pre-market trading (about 1.2%), did gold’s price rally substantially?

No. It’s up by just 0.38% so far today. (And silver’s price is up by over 1.6%, which means that it’s outperforming gold on an immediate-term basis – something that we often see right before bigger declines.)

So, we have a situation where gold doesn’t really want to rally based on the USD’s decline, and that’s bearish for gold, especially since the support for the USD Index appears to be just around the corner.

Also, regardless of the immediate-term effects on forex prices, please consider the following. If the situation in Ukraine stabilizes and things get back to the way they were before, at least in terms of borders (or Ukraine claims Crimea back), it means undoing a lot of what happened based on those changes in the past, right? And gold rallied in response to both events – the invasion of Crimea and the invasion of the rest of Ukraine. So, it could decline as things stabilize – mainly because the safe-haven demand wanes.

The second big thing that I want to feature today is the situation in the HUI Index. I like to analyze this index as it’s been trading for a long time, and therefore it’s able to provide a lot of context to the most recent price moves.

Here We Go Again?

In this case, what I would like to emphasize is that the key breakdown is below the rising long-term support line that’s based on the 2016 and 2018 lows.

Back in 2020, the breakdown below this line was quickly invalidated. This time, it’s the opposite. The breakdown was confirmed.

The very recent move higher simply means that gold stocks are verifying the breakdown. Nothing more.

It is the huge decline that we saw this year that is what is really going on, and by focusing on just the last several trading days, one might completely miss the perspective. The big deal about gold stocks right now is that they are in a medium-term decline, not that they bounced recently.

As far as gold itself is concerned, it continues to correct from approximately its previous lows, which is exactly what we saw in 2013 right before the biggest part of the slide. I was there. I remember what the overall feeling among the investors back then was. The narrative was “the bottom is in, the rally will now surely resume, it’s a no-brainer”. Then gold plunged.

Nothing from what we saw recently (including today) invalidated this analogy. The outlook remains extremely bearish.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Reversals in Gold and Silver Are More Bearish Than Declines

As Predicted

In yesterday’s analysis, I explained how extremely likely it was for gold to decline after U.S. Labor Day, and that’s exactly what happened – gold declined. Not only that – it actually reversed its early gains before moving lower, and we saw the same thing in silver and mining stocks, and the reversal is more bearish than a small decline, as it indicates that the very brief rally is likely already over.

Let’s take a look at what happened recently, starting with gold.

As I wrote above, gold reversed and declined yesterday. However, it also did something else – it declined on volume that was relatively big after a daily upswing that took place on relatively low volume.

The volume readings confirm the bearish nature of the recent back-and-forth trading.

The medium-term downtrend simply remains intact.

Silver did something similar.

The white metal moved up to $18.47 on an intraday basis, but then declined and ended the day only $0.03 higher. This means that it declined by $0.44 before the closing bell, Aad it closed below the July lows. The breakdown below them was therefore just verified. This is bearish.

What about junior miners? They declined more visibly, ending the session 2.29% lower, thus further increasing our profits from short positions in them. The GDX was down by 1.47%, and the HUI Index by 1.08%.

Let’s zoom in – the chart below is based on hourly candlesticks.

What’s Up With Gold Stocks?

In yesterday’s analysis, I commented on the good technical reason why the GDXJ ETF has moved higher recently:

The GDXJ moved higher and briefly moved above the previous trading day’s closing price and its intraday low. Then, the GDXJ moved back down and closed below those levels.

The important extra detail here is that Thursday’s session started with a price gap. It’s important because prices tend to “want” to close the price gap before continuing with their current trend. “Closing the gap” means temporarily moving to the levels and actually trading where there was no trading before (thus, the gap). That’s exactly what we saw on Friday.

What we haven’t seen on Friday is an invalidation of the breakdown below the July lows in closing price terms. Consequently, the breakdown was not invalidated but verified.

This is not a bullish price action, but something bearish and quite normal. Consequently, the outlook remains bearish.

Indeed, the value of the GDXJ ETF declined yesterday as well. What’s particularly interesting is that while closing below the lower border of the price gap, the GDXJ also closed below the intraday low of July. This means that the breakdown below those lows just became even more believable.

This, together with reversals seen in gold and silver, paints a very bearish picture for the following weeks – and quite likely also for the following days.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks.

If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Nothing Is Stopping the GDXJ From Reaching 2020 Lows

Gold moved visibly lower yesterday, silver closed at the second-lowest level in over 2 years, and miners (both GDX and GDXJ) formed their lowest daily close in over 2 years! If someone has chosen to take short positions, profits have increased.

Let’s take a closer look at what happened.

Weaker and Weaker

The freefall in gold stocks continues. Remember when I wrote that miners were about to slide profoundly, when they were trading over 320 earlier this year? Very few of my colleagues agreed, and some laughed. I guess the laughter is silent by now.

The weakness that we saw in previous weeks – and during yesterday’s session – is truly profound, and what I wrote about it yesterday remains even more up-to-date, as we have now seen a breakdown to fresh lows. Quoting my yesterday’s analysis:

Gold and silver are currently more or less where they were trading about two years ago (before the final part of the mid-2020 rally).

What about gold stocks? The HUI Index would have to rally by almost 50% in order to get back to those analogous price levels!

Gold stocks usually lead gold higher and lower (there are some short-term exceptions, but they are not really applicable right now), and there’s no doubt that miners currently lead gold lower.

Please consider the size of the recent corrective upswing in gold, then in silver, and next, please look at how “much” gold stocks rallied.

Laughable, isn’t it?

Not only that – gold stocks already gave away almost the entire rally, even though gold is only about halfway down.

If you think that this is extremely bearish, then… Of course, you’re right. However, the situation is actually even more extreme than that.

You see, that’s the same thing we saw on the precious metals market in 2013, right before the biggest part of the slide!

Now, as far as the GDXJ is concerned, it really seems that it’s on its way to its 2020 lows. The question is whether it will get there in the 2020 style or whether the decline will be more measured. If so, then where the corrections might be, and whether it’s a good idea to try to trade them.

Back in 2020, we had a global panic based on something that the modern markets haven’t experienced before (the pandemic, lockdowns). Now we have “relatively regular carnage.” The rates are going up, as well as the USD, and the stock market is going down.

However, it’s not a massive-event driven price move, and thus it can – and is likely to – take place in a rather regular manner.

So, while it’s still likely to be huge, like what we saw in 2008 and 2013, it’s also likely to be more measured and thus technical.

What Happened During the Crisis?

Back in 2008, the price moves were bankruptcy-news driven, while in 2013 the decline took the regular form. Despite the initial reason for gold to move up (Russian invasion in Ukraine), it failed to hold on to its gains, and instead it started to decline in a very visible way. Silver and miners are declining even more and faster.

The pressures from the USD Index and real interest rates are now greater than they were back in 2013, so the current decline has “bigger legs”. It lacks the dramatic circumstances of 2008, though.

What does it all mean? It indicates that the current big move lower is likely to be at least as significant as what we saw in 2013, but at the same time that it might be easier to trade than with the huge price swings that we saw in 2008.

Where does this discussion get us? It gets us to the indication that it’s still possible that we get a reliable rebound from the $27-28 area in the GDXJ, while gold rebounds one last time from the previous lows.

I previously commented that the above move is too uncertain to bet on it, and this remains to be the case However, I would like to point out that it’s still possible that I will write about adjusting the trade at those levels, after all.

This will depend heavily on the way in which the precious metals market falls in the following days. The more sudden and sharper the drop, and the stronger miners are relative to gold (so far this is completely absent), the bigger the odds that we’ll see a corrective upswing.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Gold Is Poised to Move as the Euro Is Straddling Parity Against US Dollar

And last week, something epic happened in the forex market.

Namely, the EUR/USD closed the week below the all-important 1 level.

For the first time in almost two decades!

When this level was first approached weeks ago, I wrote that a rebound was likely, but I also added that I expected this level to be broken after the rebound. That’s exactly what we just saw.

This is something that the media will catch on to and is likely to trigger action from the investing public. This is where the early part of panic could start in the forex market, and it could then catch on in other markets – stocks, gold, silver, mining stocks, etc. This is the “oops, the unthinkable is happening” moment.

Those of you who have been profiting from how this situation develops practically throughout the entire year (like my subscribers), will likely be happy to know that the above indicates (I’m not making any guarantees, of course) that the biggest gains (based on mining stocks’ declines) are likely just ahead.

The USD’s Rally

Moving back to the USD Index, it had recently moved slightly below its 50-day moving average, and then it moved back above it. After that, it started to rally, and has continued to rally until this moment.

This move is in tune with what we saw at previous local bottoms. The RSI moved slightly below 50, which used to accompany bottoms in the previous months.

So, the scenario in which the USD Index has already bottomed seems quite likely. In fact, we already saw a breakout to new highs in today’s (Aug. 29) pre-market trading.

Please note that back in June/July, gold was initially reluctant to decline. It moved sharply lower after it was already clear that the USDX was moving to new highs. Consequently, we might see a sizable short-term decline in gold very soon.

Let’s zoom out.

I previously wrote the following about the USD Index’s long-term chart:

There’s also the possibility that the USD Index keeps declining until it reaches the very strong support at about the 104 level – the previous long-term highs (…).

Last week, the USD Index bottomed at about 104.5, which was very close to the above-mentioned 104 level. If traders had expected the USD Index to bottom at this level, then some of them might have bought at higher levels in order to maximize their odds of catching the bottom, thus actually creating the bottom at higher levels.

As the USDX moved to the upper border of my previous downside target, it seems that the short-term bottom is already in.

This, in turn, likely means that the peak for precious metals is already in.

Please note that the USD Index is currently rallying in an approximately mirror image of how it declined in 2002. Based on this, it seems that one shouldn’t be surprised by a rather quick move from the current levels to about 120 – the USD Index’s long-term highs. Of course, the implications for the precious metals market are profoundly bearish.

Follow the Prices

If you can’t or don’t want to profit from declining mining stock prices, I also have good news. Please note that the decline is not likely to take place forever. Based on how the precious metals sector declined in 2008 and 2013, and based on multiple other indications, it seems that we’ll see a major bottom this year. While higher prices are encouraging, please note that there are two moments that determine a given trade’s or investment’s profitability – it’s not just the exit price, but also the entry price.

Thanks to declines and lower prices, one can get in at much lower levels and thus greatly increase the profits (again, I’m not guaranteeing any profits or market performance – nobody can guarantee it) from the entire huge rally that’s likely to take place in the following years.

The “mother of all buying opportunities” in the precious metals sector is likely not here yet, but it’s likely to present itself in the not-too-distant future. Stay tuned!

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Gold’s Foremost Lesson from 2013

Gold is performing just as in 2013, and it has extremely important implications for the following weeks.

Since I keep reading about how supposedly bullish the current corrective upswing is, I decided to dedicate today’s analysis to showing you just how perfectly normal it is for this correction to be taking place – in tune with what happened in 2013, not against it.

In other words, what we see now is not a bullish game-changer, but rather a very normal repeat of what we already saw almost a decade ago.

History Rhymes as People Tend to React Similarly to Similar Price Developments

The underlying reasons for price moves change, but the forces that really drive the buy and sell decisions remain the same. These forces are fear and greed. Thanks to this, even though the economic, financial, and geopolitical situations are different now than in 2013, the price moves continue to be very, very similar.

The exception is that back in 2013, there was no major military invasion in Europe, and we have one right now. This means that gold – being a safe-haven asset – was practically forced to rally. As gold rallied higher than it did in late 2012, it then declined in a more volatile manner.

Since the decline was sharper this year than it was in 2012 and 2013, the correction that we see now is also more volatile. That’s perfectly normal. If you drop a ball from a higher level, it will also bounce higher before falling again, right? However, it will fall, nonetheless.

Let’s see what happened in 2013.

Now, let’s see what happened recently.

No, it’s not the same chart :). The first one shows gold’s performance between 2011 and mid-2013, and the second shows gold’s performance between late-2019 and today.

The price pattern in gold is so similar, because… history rhymes! Gold got too high too fast in 2011 and the same thing happened in 2020. In fact, if it weren’t for the huge amounts of money that were created due to the pandemic-related stimulus programs, gold would have likely declined instead of rallying. The proof here lies in the fact that, well, it invalidated the breakout above the 2011 high despite the above and despite the Russian invasion.

Think about it: if someone told you a few years ago that there would be a pandemic, global lockdowns, huge amounts of money being printed, double-digit inflation in many parts of the world, and a Russian invasion of Ukraine, would you believe that gold would fail to rally and stay above its 2011 highs?

Very few people would have likely believed that – and yet, that’s exactly what happened, and what’s still happening.

Yes, gold “wants” to decline before soaring (and yes, I do think that it will soar, but it’s simply unlikely before sliding first, similarly to what we saw in 2008), and since that’s the case, it has to decline in some sort of price pattern. What’s the most likely way for gold to decline? Since history tends to rhyme, the previous big declines provide guidance. In particular, the 2013 decline has been repeated to a very considerable (quite extreme, actually) extent.

What Does This Specific Self-similarity Tell Us Right Now?

It’s telling us… Hmm, no.

It’s screaming right into our ears: watch out!

If the pattern simply keeps repeating itself (which has been taking place for months!), then the huge slide is just ahead. The current correction and back-and-forth trading is likely just the calm before the storm.

Of course, the above is just my opinion, and I can’t promise any kind of performance of any market, including gold, but please note that the previous months’ weakness in gold and silver mining stocks vs. gold are also just like what we saw in 2013 before the huge slide…

I don’t even want to get into the “tiny” fact that while gold moved briefly above its 2011 highs in 2020, neither silver nor gold mining stocks were even close to something similar. Instead, they corrected about a half of their huge decline, and then they started another move lower – a move that continues to this day.

The markets are screaming an important message. However, it’s your choice if you decide to listen to them.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Don’t Be Misled by Gold’s Recent Upswing

Patience Advised

Gold moved higher on Friday, so you might be wondering if this changed anything regarding the outlook. In short, it didn’t.

Let’s take a closer look at what happened.

Gold futures moved higher by over $12, and this meant that they moved from the lower part of my previous target area to its upper part. In other words, it remained within the target area, which means that it kept doing what was – in my view – the most likely course of action for this particular market.

As such, it didn’t invalidate any previous expectations, let alone the broader outlook.

Gold stopped below the upper border of the declining trend channel, and it ended the week below the neck level of the previous head-and-shoulders pattern. Both remain unbroken, so the recent upswing doesn’t change the outlook, which turned bearish when we took profits from our previous long position on Thursday.

The RSI indicator is now visibly above 50 and close to the levels that triggered a top in gold in April and June 2022, and in July 2021.

As you may recall, gold is currently repeating its 2012-2013 pattern, and based on it, it’s likely just before the most volatile part of the decline. You can read more about it in Friday’s analysis (and in many previous analyses), and if the above is new to you, I strongly suggest that you take the time to read more – the self-similar pattern is truly astonishing.

So, let’s check what gold did in 2013 at the analogous time.

Well, it consolidated for a few weeks and plunged only after that consolidation.

While it doesn’t guarantee that we’ll see a pause that’s as long as the one that we saw before the April 2013 slide, it’s a good indication that the huge decline might not start immediately, but rather we might see some “preparatory” action.

Back and Forth

For now, investors and traders might view the current prices as temporary, and they might expect gold to soar back up. In fact, I saw multiple analyses indicating exactly that. This means that a week or a few weeks of back and forth trading close to the current price levels or between the current price levels and the recent lows would help to convince them that this move lower was not accidental.

This would make them much more likely to sell (and panic) once gold breaks below its recent lows.

Also, while the above chart doesn’t show it, because it’s based on weekly and not daily prices, gold topped in March 2013 when its daily RSI was trading just a little above 50 and close to its previous higs – just like what we see right now.

Getting back to the possible back-and-forth movement that we might see now, please note that the price “action” was even more boring in the case of silver and mining stocks (middle and lower parts of the above chart). They did very little during the consolidation, but when they finally moved lower, they truly plunged.

Oh, and don’t let the sizes of the moves fool you – the scale is linear in the case of silver and GDX, while it’s logarithmic in the case of gold. In reality, the mining stocks still declined the most, and silver’s decline was still bigger than the one seen in gold.

All in all, the short-term rally appears to be over or about to be over, and mining stocks’ lack of strength on Friday confirms it.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Interest Rates Rose, but the Result Is Bullish for the GDXJ

Powell Strikes Again

With all eyes on Fed Chairman Jerome Powell on Jul. 27, the central bank chief took his perpetually dovish rhetoric to a new 2022 high. Moreover, while the FOMC raised interest rates by 75 basis points – which was widely expected – Powell was Mr. Friendly. He said:

“While another unusually large increase could be appropriate at our next meeting that is a decision that will depend on the data we get between now and then (…). As the stance of monetary policy tightens further, it will likely become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation.”

He added:

“Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low.”

Thus, while Powell reiterated comments like ‘rate hikes will continue’ and ‘we’re dedicated to achieving our 2% inflation goal,’ he continued to demonstrate his lack of inflation understanding. For example, he noted that “the public doesn’t distinguish between headline and core inflation,” and that a sustained period of supply shocks caused by bottlenecks and the pandemic “can start to undermine and work on de-anchoring inflation expectations.”

Therefore, he still assumes that inflation is mainly a supply-side phenomenon and that the Fed has to balance both sides of the equation delicately. However, while his uniformed assessment will likely be his undoing, the rhetoric is bullish for our GDXJ ETF long position.

Please see below:

To explain, the gold line above tracks the one-minute movement of the GDXJ ETF, while the red line above tracks the one-minute movement of the USD Index. If you analyze the vertical gray line, you can see that volatility struck when Powell began his press conference at 2:30 p.m. ET.

Moreover, with his dovish disposition sinking the dollar basket and uplifting the junior miners, the price action unfolded as expected. To explain, I wrote before the opening:

With Powell taking center stage today, intraday volatility may be amplified. However, with risk assets often rallying during Powell’s pressers, another re-enactment would help our long position. Moreover, if he decides to talk down the USD Index and U.S. Treasury yields, it would only brighten the GDXJ ETF’s short-term outlook. As such, while unanchored inflation should shift sentiment over the medium term, we still expect higher prices in the days ahead.

To that point, with Powell making it a trifecta and also talking down U.S. Treasury yields, the central bank chief made it his mission to loosen financial conditions.

Please see below:

Source: Investing.com

Thus, while Powell’s monetary missteps have been on display for 24+ months, he continues to repeat the same blunders. However, with the old Wall Street adage of ‘take what the market gives you’ proving prescient on Jul. 27, we don’t mind being long the GDXJ ETF and profiting from the short-term sugar high. Therefore, we expect the junior miners’ uprising to continue in the days ahead.

In contrast, with Powell’s preference for patience poised to prove extremely costly over the medium term, we’ll be careful not to overstay our welcome.

Powell’s Freight Train to Ruin

While Powell’s dovish rhetoric was met with applause on Jul. 27, his willingness to push up asset prices and loosen financial conditions is like offering needles to drug addicts. In a nutshell: he provides what they want, not what they need. Therefore, while sentiment moves markets and the current environment is bullish for the GDXJ ETF, the medium-term consequences should be dire.

For example, I’ve noted how billionaire hedge fund manager Bill Ackman aligns with our way of thinking about inflation. However, with our view in the extreme minority, the consensus sees things overwhelmingly differently. Moreover, Ackman was spot on when he wrote on Jul. 26 that “the biggest risk to the U.S. economy is not the Fed raising rates. It is inflation.”

Furthermore, while he referenced the sharp drop in U.S. Treasury yields, the drop in investment grade and high yield credit spreads, and the rise in stock prices, (add the USD Index decline, though Ackman didn’t mention that), he noted prior to the FOMC release on Jul. 27 that “financial conditions have eased materially, which has made the inflation problem worse.”

He added:

“What I don’t understand is why Powell is reluctant to say that the Fed will stop inflation in its tracks by raising rates and keeping them as high as they need to be for as long as they need to be until we have durable evidence (not a few months of lower inflation) that inflation has been licked. That is what it is going to take to kill off inflation and preserve the economy and the equity markets for the long term.”

Thus, while Ackman should know that Powell always leans dovish during his press conferences, the six-to-12-month assessment should prove prescient. However, since opponents of the thesis believe that “the market is smarter,” the consensus (for some reason) opines that rampant inflation is preferable to a rate-hike-induced recession.

Please see below:

However, I warned on May 20 that investors should be careful what they wish for. I wrote:

With the consensus still fighting the hawkish realities that I warned about since 2021, the VIX is behaving as you might expect. I mean, why panic when the Fed is all bark and no bite? Therefore, everyone can relax because the Fed will turn dovish, inflation will rage, and in some alternative reality, this outcome is bullish for risk assets.

However, I’ve warned on numerous occasions that a dovish pivot would have dire long-term consequences for the U.S. economy. As such, Fed officials (should) know this, and a small short-term recession is much more attractive than a long-term hyperinflationary collapse. Yet, investors still assume that the latter option is more likely because the Fed can’t withstand falling stock prices. 

However, with recency bias clouding investors’ judgment, they don’t realize that 1970s/1980s-like inflation is a completely different animal. 

Thus, while the consensus follows the post-GFC ‘bad news is good news’ script and assumes that weak data will elicit a Fed pivot that solves all of the U.S.’s economic problems, the reality is that the recession train has already left the station.

As a result, the choice is between a rate-hike-induced downturn that quells inflation or a hyperinflationary malaise that leaves Americans in a worse position 12 months from now. Likewise, if investors assume that cutting rates or reigniting QE amid rampant inflation will have a positive outcome, they haven’t done their homework. As evidence, I warned on May 26 that the consensus is betting on an outcome that hasn’t materialized in 70+ years. I wrote:

With annualized inflation at [9%+], calming the price pressures with such little action is completely unrealistic. In fact, it’s never happened.

If you analyze the chart below, you can see that the U.S. federal funds rate (the green line) always rises above the year-over-year (YoY) percentage change in the headline Consumer Price Index (the red line) to curb inflation. Therefore, investors are kidding themselves if they think the Fed is about to re-write history. 

In addition, notice how every inflation spike leads to a higher U.S. federal funds rate and then a recession (the vertical gray bars)? As such, do you really think this time is different? 

What Inflation?

With Powell noting that the pace of future rate hikes will “depend on the data,” his rhetoric was a green light for risk assets. However, with crude oil prices rallying sharply, most commodities took note of the dovish pushback. As such, Powell’s words fueled month-over-month (MoM) inflation.

Please see below:

Source: Investing.com

Likewise, while Q2 earnings calls and presentations have been riddled with mentions of inflation and price increases, the chorus continues to sing. For example, Whirlpool – a U.S. manufacturer of home appliances like dishwashers, fridges, ovens, and laundry equipment – released its second-quarter earnings on Jul. 26. CFO James Peters said during the Q2 earnings call:

“Our raw material inflation expectations remain unchanged, and we do expect raw material inflation to peak in the second and third quarter.” However, with higher prices “fully offsetting cost inflation,” price increases of 7.25% are expected for the remainder of 2022.

Please see below:

Source: Whirlpool

In addition, I noted on Jul. 27 that Chipotle Mexican Grill was a major winner after hours due to upbeat earnings. However, with price increases the primary culprit, investors responded positively to the company’s ability to protect its profit margins. An analyst asked during the Q2 earnings call, “Why seek more pricing now?” CEO Brian Niccol responded:

“Unfortunately, a lot of things have stuck versus gone away as far as inflation. And then we’ve got some key items that have frankly continued to be inflationary. And I think Jack highlighted it right. We’ve got avocados, we’ve got dairy, tortillas, some packaging. So, unfortunately, we were hoping we’d see some of the stuff pull back. We haven’t seen that.”

Moreover, when asked about construction costs for new stores, CFO John Hartung responded:

“In terms of inflation, it’s at least in the several percent range, maybe even more than that. The deals have varied throughout the country, but definitely our investment costs this year are much higher than they have been in the past and higher than we expected them to be.”

As a result, after raising prices by ~10% in the back half of 2021, another ~4% increase is scheduled for August.

Please see below:

Source: Chipotle Mexican Grill/AlphaStreet

Thus, Powell is flying blind once again. After raising prices for 24+ months, corporations continue to amplify inflation. Moreover, it’s Powell’s responsibility to normalize the pricing pressures, and corporations will do what they have to do to preserve their margins and keep their stock prices afloat. As such, Powell drastically underestimates the task at hand.

The Bottom Line

Since Powell’s lack of foresight is a gift to our GDXJ ETF long position, we think the upward momentum still has some room to run. Moreover, with the USD Index and the U.S. 10-Year real yield falling, looser financial conditions are bullish for junior miners. However, a reversal of fortunes should occur rather sooner than later (probably not later than a week from today).

In conclusion, the PMs rallied on Jul. 27, as it was off to the races for risk assets. Moreover, with the bulls exuding confidence, higher prices remain the path of least resistance. As a result, we remain on the long side for the time being, and profitably so.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

If Gold Continues Its Uptrend, Junior Miners Will Benefit

Bullish Indications

Overall, the precious metals sector didn’t do much last week. Gold was up by 1.4%, silver was up by 0.12%, GDX was down by 0.7%, and the GDXJ was up by 2.46%.

Junior miners are the bullish exception that reacts to gold’s recent strength. Seniors and silver are not really participating in the rebound – at least not yet. As a reminder, the above is not necessarily a sign that junior gold and silver miners are particularly strong – it’s likely the case that they have simply fallen the most recently, and therefore their rebound is the strongest.

As you may recall, silver tends to outperform gold close to the end of a given rally, and we haven’t seen this phenomenon this time, except for the last rally that ended on July 18. However, that was too early in the rally to really call this type of performance something close to the end of the rally – it was too close to its beginning.

Consequently, it could be the case that we’re going to see more strength in the precious metals market before the big move lower continues.

What we saw in the general stock market confirms this scenario.

Stocks declined somewhat on Friday, but overall, they ended last week visibly above their declining short-term trend channel and above their 50-day moving average. That’s simply a bullish combination for the short run.

This tells us that silver and mining stocks (and especially junior mining stocks) are likely to move higher unless gold truly plunges.

Gold Hasn’t Stopped Yet

Gold is likely to move higher in the short term, not plunge. The reason is that it just invalidated the breakdown below its mid-2021 lows and the 61.8% Fibonacci retracement level based on the entire 2020 rally. The yellow metal did so after bottoming right in the middle of my target area, close to its previous lows.

Besides, in all recent cases when gold rallied after its RSI was below or very close to the 30 level, it then rallied at least until the RSI was close to 50. That’s not the case yet, so it doesn’t seem that gold is done rallying yet.

All in all, gold is likely to move higher within the next several days, and the same goes for the general stock market. Both are likely to contribute to higher prices in junior mining stocks. The latter are likely to rally, top, and then start another very powerful move lower. For now, however, the short-term outlook remains bullish.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported.

The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Gold Is Getting Ready to Follow in Junior Miners’ Footsteps

Gold is doing pretty much nothing these days, but junior miners tell us what gold’s going to do next. It’s most likely to rally in the short term.

Why is it possible that gold rallies in the short term?

Because the mining stocks tend to lead gold higher and lower, and looking at the relative performance of both parts of the precious metals sector, we see that this time, miners are already moving higher, while gold is getting ready to follow in miners’ footsteps. Let’s take a closer look at what junior miners (the GDXJ) did recently.

In short, junior miners managed to break above their declining short-term resistance line, and they closed above it for the second consecutive day. If they stay above it today (which is highly likely), the breakout will be confirmed. This is a very bullish indication for the short run.

This is especially the case since it happened shortly after the GDXJ refused to break below the $30 level – rallying back above it after a daily close slightly below it. The invalidation of the tiny breakdown itself was a bullish sign, not to mention that the very bottom – the daily reversal – materialized in huge volume.

The above chart is bullish for the short run, and please note that junior miners are now well above their early-July bottom.

Gold, on the other hand, is not above its early-July low. It’s barely up from its July 14 bottom.

The RSI remains very oversold, suggesting that gold hasn’t started its rally just yet, but that it remains poised to soar. After all, in RSI terms, gold is now more oversold than it was at its 2020 bottom.

Speaking of 2020, gold recently bottomed practically right at its early-2020 high. To be clear, it was one of the levels that created strong support close to the $1,700 level. Either way, this means that gold is likely to rally any day now.

Forex markets and gold

Why isn’t it rallying, especially given that the USD Index is declining and the EUR/USD currency pair is rallying?

As a reminder, the EUR/USD pair reversed in a profound way after trying to break below the all-important 1 level. For a brief moment, the U.S. dollar was more expensive than the euro, and it triggered a reversal, just as I had indicated.

The answer to the why-not question could lie in Europe. More precisely, in the Eurozone and this week’s interest rate decision, which is due tomorrow (Thursday, July 21). It’s not a matter of what will or will not be said and done. It’s a matter of the uncertainty that will be present until it’s known what the status is (for now). Based on that, we could see some chaotic price movement on an intraday basis. However, once a decision is made and the markets know what’s going on, the traders might finally want to enter the trades that they are now allowing themselves to enter right now, adopting the wait-and-see approach.

Please note that the above is just one of the possible triggers for gold price moves, and it could actually be something else that directly triggers the move. What it will be is of relatively small importance. What is much more important is the pressure that has built up for gold to rally.

The USDX decreased, and junior miners are already moving higher. The RSI below 30 is like a coiled spring, just waiting to expand rapidly. Given the ECB’s looming decision, it seems that we won’t have to wait long for gold to finally move and correct some of its recent declines.

All in all, it looks like the precious metals sector is going to rally and probably top close to the end of this month as the USD Index pulls back after a sizable rally.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Gold Stocks Are Heavily Oversold – A Rebound Is Likely Soon

2008, Is That You Again?

History tends to repeat itself. Not to the letter, but in general. The reason is that while economic circumstances change and technology advances, the decisions to buy and sell are still mostly based on two key emotions: fear and greed. They don’t change, and once similar things happen, people’s emotions emerge in similar ways, thus making specific historical events repeat themselves to a certain extent.

For example, right now, gold stocks are declining similarly to how they did in 2008 and in 2012-2013.

The Russian invasion triggered a rally, which was already more than erased, and if it wasn’t for it, the self-similarity would be very clear (note the head-and-shoulders patterns marked with green). Since the latter happened, it’s not as clear, but it seems that it’s still present. At least that’s what the pace of the current decline suggests. 

I used a red dashed line to represent the 2008 decline, and I copied it to the current situation. They are very similar. We even saw a corrective upswing from more or less the 200-week moving average (red line), just like what happened in 2008.

We saw a breakdown to new short-term lows, which means that the volatile part of the slide is likely already underway.

Moreover, last week, I commented on the above chart in the following way:

On a short-term basis, we see a short-term (only) downside target of around 200. That’s about 10% below yesterday’s (Thursday’s) closing price. There are several reasons for it:

  1. It’s a round number, and those tend to be more important psychologically than other numbers.
  2. That’s where we have the rising medium-term support line based on the 2016 and 2018 lows. The temporary move below this line triggered a massive rally in 2020.
  3. That’s where we have the 61.8% Fibonacci retracement level based on the entire 2016-2020 rally.

Not Every Fall Must Be Bearish

The 200 target was just reached yesterday. In fact, what happened was even more bullish than that – we saw a tiny move below this level – to 199.22, and then a comeback and a close visibly above 200 – at 204.67.

Ultimately, the HUI Index moved lower yesterday, and many will view this simple fact as something bearish. However, doing that would be a “rookie mistake” – after all, major bottoms can only form after declines, right? My point is that a move higher or lower is not bullish or bearish by itself. It’s the context that adds meaning to a certain price move. In this case, a major support level was reached while the HUI Index was already heavily oversold.

In fact, based on the RSI, the gold stocks are even more oversold than they were at their 2020 bottom!

Consequently, a rebound here is a likely short-term outcome.

All right, let’s zoom in and see how mining stocks declined in 2008.

Back then, the GDXJ ETF was not yet trading, so I’m using the GDX ETF as a short-term proxy here.

The decline took about 3 months, and it erased about 70% of the miners’ value. The biggest part of the decline happened in the final month, though.

However, the really interesting thing about that decline – that might also be very useful this time – is that there were five very short-term declines that took the GDX about 30% lower. 

I marked those declines with red rectangles. After that, a corrective upswing started. During those corrective upswings, the GDX rallied by 14.8-41.6%. The biggest corrective upswing (where GDX rallied by 41.6%) was triggered by a huge rally in gold, and since I don’t expect to see anything similar this year, it could be the case that this correction size is an outlier. Not paying attention to the outlier, we get corrections of between 14.8% and 25.1%.

The interesting thing was that each corrective upswing was shorter (faster) than the preceding one.

The first one took 12 trading days. The second one took seven trading days. The third one took 2 trading days, and the fourth and final one took just 1 trading day.

Fast forward to the current situation. Let’s take a look at the GDXJ ETF.

The GDXJ ETF declined by 32.4% and then corrected – it rallied by about 20.3%. The corrective upswing took 14 trading days.

Now, it has declined by about 31.5%.

The above is in perfect tune with the previous patterns seen in the GDX during the 2008 slide.

I previously wrote the following:

What does it tell us? It indicates that history can be rhymed, and while it will not be identical, we should pay attention to the indicators that worked in 2008. The next corrective upswing (a notable one, that is) might start when the GDXJ ETF declines by about 29-35% from its recent top.

To clarify, I don’t claim that the above technique would be able to detect all corrective upswings, or that I aim to trade all of them. For instance, in my view, it was a good idea to enter a long position on May 12 and switch to a short position on May 26, but I wasn’t aiming to catch the intraday moves.

Again, yesterday’s bottom formed about 31.5% below the recent high, which perfectly fits my previous estimate and the analogy to 2008.

Based on how long the corrective upswings took in 2008 and how long the recent one took, the upcoming corrective upswing is likely to take between 5 and 10 trading days. If the bottom formed yesterday, which seems likely as the GDXJ ETF is already up by over 1% in today’s London trading, then we can expect the next local top to form within 1-2 weeks. In other words, it seems that the corrective upswing is likely to end in the next part of July – probably in its final week.

Back in 2008, the counter-trend rallies varied greatly in their magnitude, but please keep in mind that back then, the decline was very much news-based – Lehman Brothers’ collapse, etc. This time, the decline is more measured, so declines and corrections are more measured as well.

While back in 2008, during the first correction, the GDX gained only 14.8% and during the second one it gained a sizable 41.6%, this time the first rally provided a measured 20.3% increase. If the upcoming correction is also measured, then the GDXJ might also rally by about 20%.

If yesterday’s intraday low was indeed the final bottom, then the starting price would be $28.88 and a price 20% higher is ~$34.66, which fits my target area for the upcoming correction.

Naturally, the above is up-to-date only at the moment of writing these words (Friday, July 15th), but I’ll keep my subscribers informed with regard to any changes.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

What Needs to Happen for the GDXJ to Hit New Lows?

Let the S&P 500 Be a Clue

Mining stocks declined significantly this week, but they haven’t severely underperformed gold. There is a good reason for it – the general stock market moved higher recently.

What would have to happen for the mining stocks (in particular, junior mining stocks) to decline in a more profound manner and slide well below $30 (in the GDXJ)? For example, the trend in the stock market could reverse.

Guess what – that’s exactly what’s likely to happen based on what’s going on in the S&P 500 chart.

The S&P 500 just moved to the upper border of its trading channel, which means that it’s now likely to reverse its course. This scenario is supported by the action in the RSI indicator.

As you can see on the above chart (marked with red arrows), when the RSI moved to or close to 50 in recent months, it meant that the corrective rally was either over or about to end. The RSI just moved to 50.76.

In all recent cases, the declines that followed this RSI-close-to-50 sell signal were sharp. All of them, except the last one, were quite significant from the short-term point of view. In fact, if the S&P 500 does exactly what it did after the previous signals, it will likely move close to the 3,500 level, which has been my target area for some time now. That’s where we have the 50% Fibonacci retracement based on the entire 2020-2022 rally.

Most interestingly, though, such a decline would likely have a devastating effect on the prices of mining stocks (especially junior mining stocks) and silver. There might be some impact on gold, too.

The Rise of the Dollar

The above would also be in tune with an extra rally in the USD Index. After all, less competitive exports are not that favorable for the U.S. economy.

Speaking of the USD Index, after invalidating the breakout below the multi-year head-and-shoulders pattern, the USDX was poised to soar, just like I’ve been expecting it to do for more than a year, and that’s exactly what it did. And now it’s as high as it hasn’t been that high in 20 years!

The USD Index just broke above the previous highs, and it did so after correcting, which means that it just completed a massively bullish cup-and-handle pattern. This pattern is likely to send the USD Index much higher. However, since no market moves in a straight line, either up or down, let’s see where we have potential resistance levels.

The nearest resistance is provided by the 2002 high, and it’s slightly above the 108 level.

This means that the USD Index could easily rally by another 1 index point or so, which in turn could easily trigger another profound decline in gold.

This could happen this week (or early next week), so please stay tuned.

Whether this triggers a massive decline in junior miners or not is a different matter. It might, but it also might trigger a move back to this week’s intraday lows or just somewhat below them, and then miners could show strength. Either of the above – if accompanied by gold’s move to/below $1,700 – would serve as a signal for closing one’s current short positions and taking our massive profits off the table.

If the general stock market declines along with a rally in the USD Index, then the scenario in which the junior miners decline profoundly will likely be realized. I think it’s the more likely scenario here.

Do I plan to enter a long position once I close the current short position? Yes (just like I did at the end of the previous big correction), but only if gold declines below $1,700. If it doesn’t, and it moves higher right now, then I most likely won’t make any adjustments to the current short position. Remember – it’s not the point to catch each and every price move – in fact, it’s impossible to do so. The point is to select those trades that have the best risk-to-reward ratio and then enter trades while waiting out (i.e., ignoring) possible trades that don’t have a very favorable risk-to-reward ratio.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Gold’s Inability to Pass the $2000 Mark Is a Very Bearish Clue

Gold, silver, and mining stocks (major proxies for them) have all moved to new yearly lows during yesterday’s trading, and they are not back up (they’re rather flat) in today’s pre-market trading.

This is a significant bearish development, and it will finally convince many traders and investors that something is wrong with the bullish case for gold and the rest of the sector..

Why on earth would gold move to new yearly lows despite the ongoing war in Europe, the pandemic, and soaring inflation?

Because all of the above was already discounted in price, gold was still unable to move decisively above the $2,000 level. In fact, it failed to stay above its 2011 high, and that’s just gold. Silver and mining stocks were not even close to moving to their analogous price levels.

Gold’s failure to launch a proper rally was a massive indication that it’s not yet ready to move higher – it needs to decline massively first, which is what I’ve been writing for many months, but as new black swans kept popping up, gold was unable to complete its regular cyclical decline beforehand. So, it’s going now.

As real interest rates and the USD Index continue to climb, precious metal prices are likely to continue to decline – at least for several weeks. At some point, I expect gold, silver, and mining stocks to stop reacting to this bearish reality and show strength, thus indicating that the final long-term bottom is in. However, we are not there yet.

Based on analogies to how precious metals and mining stocks declined in the past, we have much lower to go, and we have much more money to make on our short positions. Speaking of which, if you are positioned in tune with what I’m describing as my general opinion in my Gold & Silver Trading Alerts, i.e., you are positioned to profit from a decline in junior mining stocks, you just made a lot of money yesterday, and in the last couple of weeks in general.

This adds to the profits that you reaped on the preceding long position, which adds on top of the profits from the preceding short position. Congratulations!

After this lengthy introduction, let’s take a look at gold.

Gold Technical Analysis

Gold just moved below the neck level of the previous head and shoulders pattern and also to new 2022 lows. The breakdown took place at a hisgh volume, so it appears believable.

However, at the same time, the RSI moved below 30, which is a classic buy signal. I marked the previous similar signals with vertical dashed lines. In all three previous cases, gold was either bottoming or about to bottom.

In particular, the early-2021 situation appears similar, because the preceding price action is also similar. The failed attempt to rally above $2,000, the consolidation (marked with orange rectangles), and the subsequent decline that also included a consolidation are all present in both cases.

Back in 2021, gold continued to decline until it moved below $1,700, and while it doesn’t guarantee the same thing right now, the fact that both declines started from highs at very similar price levels makes it quite likely.

Gold Price Forecast

So, what’s likely to happen next? Well, I see two likely short-term outcomes:

  1. Gold corrects a bit, thus verifying the breakdown below the neck level of the H&S formation and the previous 2022 low,. and it then continues to decline after the correction.
  2. Gold slides to or slightly below $1,700 right away – or almost right away, but quite possibly this week.

In the case of scenario 1, junior miners would be likely to correct slightly as well, and then slide.

In the case of scenario 2, junior miners would be likely to slide right away, possibly showing some kind of strength right before gold moves to its $1,700 target.

In both cases, I plan to keep the short positions intact until GDXJ or gold reaches its targets lower – I don’t plan to trade the rebound from scenario 1. Not all moves are worth trading, just like you’ll probably agree that Friday’s daily rally wasn’t worth trading. Those who attempted to trade it have probably missed or even were hurt by yesterday’s decline instead of profiting on it.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Gold Stocks’ New Short-Term Lows Can Only Mean One Thing

Gold stocks are declining similarly to how they did in 2008.

History Can Be Rhymed

The Russian invasion triggered a rally, which was already more than erased, and if it wasn’t for it, the self-similarity would be very clear (note the head-and-shoulders patterns marked with green). Since the latter happened, it’s not as clear, but it seems that it’s still present. At least that’s what the pace of the current decline suggests. 

I used a red dashed line to represent the 2008 decline, and I copied it to the current situation. They are very similar. We even saw a corrective upswing from more or less the 200-week moving average (red line), just like what happened in 2008.

We saw a breakdown to new short-term lows, which means that the volatile part of the slide is likely already underway.

Today’s decline in silver prices to new yearly lows definitely supports the above.

All right, let’s zoom in and see how mining stocks declined in 2008.

Back then, the GDXJ ETF was not yet trading, so I’m using the GDX ETF as a short-term proxy here.

The decline took about 3 months, and it erased about 70% of the miners’ value. The biggest part of the decline happened in the final month, though.

However, the really interesting thing about that decline – that might also be very useful this time – is that there were five very short-term declines that took the GDX about 30% lower. 

I marked those declines with red rectangles. After that, a corrective upswing started. During those corrective upswings, the GDX rallied by 14.8-41.6%. The biggest corrective upswing (where GDX rallied by 41.6%) was triggered by a huge rally in gold, and since I don’t expect to see anything similar this year, it could be the case that this correction size is an outlier. Not paying attention to the outlier, we get corrections of between 14.8% and 25.1%.

The interesting thing was that each corrective upswing was shorter (faster) than the preceding one.

The first one took 12 trading days. The second one took seven trading days. The third one took 2 trading days, and the fourth and final one took just 1 trading day.

Fast forward to the current situation. Let’s take a look at the GDXJ ETF.

The GDXJ ETF declined by 32.4% and then corrected – it rallied by about 20.3%. The corrective upswing took 14 trading days.

The above is in perfect tune with the previous patterns seen in the GDX during the 2008 slide.

What does it tell us? It indicates that history can be rhymed, and while it will not be identical, we should pay attention to the indicators that worked in 2008. The next corrective upswing (a notable one, that is) might start when the GDXJ ETF declines by about 29-35% from its recent top. To clarify, I don’t claim that the above technique would be able to detect all corrective upswings, or that I aim to trade all of them. For instance, in my view, it was a good idea to enter a long position on May 12 and switch to a short position on May 26, but I wasn’t aiming to catch the intraday moves.

GDXJ could also decline a bit more than 29-35%, as let’s keep in mind that previous statistics are based on the GDX ETF and we are discussing the GDXJ here, and the latter is likely to decline even more than GDX as juniors are more correlated with the general stock market (and the latter is likely to slide).

So, let’s say that the GDXJ might decline between 29% and 40% from the recent high before triggering another notable corrective upswing (one that could take between 5 and 10 trading days based on how long the last one took and how big those corrections were in 2008).

The recent high was formed with the GDXJ ETF at $42.19. Applying the above-mentioned percentages to this price provides us with $24.78-29.32. And yes, the above would be likely to take place along with a big decline in gold prices.

Now, is there any meaningful support level in this area that could stop the decline?

Yes!

Still Bearish

The late-March 2020 low is at $26.62, and it provides significant short-term support within the analogy-based target area.

Additionally, the above corresponds – more or less – to the size of the decline that would match the size of the April-May decline. It would be only somewhat bigger.

Let’s keep in mind that gold stocks don’t necessarily move on their own, but rather move along with gold. So, if gold moves to its strong medium-term support provided by the 2021 lows and then starts a brief rally, the same action would be likely in mining stocks.

The head and shoulders pattern confirms that the downside target is well below $30, perhaps even as low as ~$24.

There’s also an additional detail present on GDXJ’s very short-term chart.

The GDXJ just broke below the declining wedge. While falling wedges are usually a bullish sign, they only become such after a break to the upside. What we witnessed was a relatively uncommon occurrence: a breakdown on the downside. The implications are therefore bearish instead of being bullish, and the profit potential for the current short position remains enormous.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Junior Miners: A Bearish Push Is Coming to Move Them Lower

April and May Replay?

Although history doesn’t repeat itself to the letter, it rhymes. At least that’s what tends to happen in the financial markets.

In today’s analysis, I’ll explain why I think we’re about to see another example of the above in the case of junior mining stocks. There’s a technique that suggests one thing, but there’s also another that suggests that a 1-to-1 analogy wouldn’t be as good a fit, as a slight deviation from it.

So far, the situation in the GDXJ – a proxy for junior mining stocks – has been similar to what happened in the second half of April and early May.

I even marked those similar periods with orange rectangles. We saw a small consolidation right after the end of the smaller rectangle, so history had already proved to be repeating itself.

However, let’s see what happened differently. This time, the initial decline (so the smaller rectangle) was not as steep as it was in April, and the following consolidation was shorter and narrower, too.

What does it tell us? No, I don’t mean the obvious “well, it’s not identical” here. The price moves are smaller either because the entire current short-term downswing is smaller (so, a smaller initial part and then a smaller final part would together create a smaller version of what we saw in April and May), or because this time, the structure of the price move is going to be a bit different.

If the latter is the case, it means that the decline can actually be bigger than what we saw in April-May, not smaller.

Looking at the charts featuring gold and the general stock market, we can tell that the latter of the above scenarios is more likely being realized.

Why? Because junior miners are weak relative to both: gold and the stock market.

Did gold move to new 2022 lows recently? Or below its 2021 lows?

Nope, it’s not even particularly close to those levels. In fact, gold didn’t even move below its recent lows on Friday.

What about the general stock market – did it slide profoundly recently? If it did, it might have explained juniors’ weakness, as both juniors and the general stock market are relatively highly correlated (compared to how correlated is the general stock market is with other parts of the precious metals sector).

Actually, the general stock market rallied last week, and it invalidated its previous breakdown below the recent and 2021 lows. In fact, the S&P 500 Index was up by over 6% last week!

Was GDXJ up by over 6% too? No. It was down by over 3%, and profits on our short positions in juniors have increased once again.

The Juniors Are Weak. Period

This tells us that it’s more likely that the deviation from the history that is not repeating itself to the letter will be toward something more bearish than the 1:1 analogy would be.

Does it complicate the outlook or analysis right now? Actually, it’s the opposite, because the above perfectly fits what was visible on broader charts all along!

I previously explained that the next target for the GDXJ is likely around the $26-27 area.

That’s below the 1:1 analogy-based target that would be at “just” $28 as the blue, dotted lines would indicate.

Additionally, please note that the GDXJ is likely about to complete a head-and-shoulders pattern. Actually, it doesn’t matter if we use the late-2021 rally as the left shoulder or the late-2021 – early-2022 one, as the early-2022 rally is still the head, and the target based on the formation is the same in both cases. I marked the neck levels with green, solid lines, and I marked the downside target based on the potential formation with green, dashed lines – it’s slightly below $24.

The formation is only “potential” at this time, as we would need to see a confirmed breakdown below the neck level to say that the formation is complete. This would mean a breakdown below ~$34.

Given the kind of weakness that we saw in junior miners recently, it seems that we won’t have to wait too long for the above to take place.

Speaking of time, the month is ending, and this might ring some bells…

The USDX Tendency

The USD Index tends to turn around at the turn of the month, usually bottoming out at that time. For example, that happened about a month ago and three months ago.

The month ends this Thursday. This tendency works on a near-to basis, so the exact bottom might or might not form on Thursday, but it doesn’t seem that we’ll need to wait for this bottom for long.

Based on junior’s weakness, we see that they just “can’t wait” to move lower, and the above USD Index chart tells us that they are likely about to get a bearish push.

Let’s not forget about the forest while looking at trees. The recent brief decline in the USD Index is likely just a handle of a cup-and-handle pattern that – when completed – is likely to take the USD Index much higher.

Most importantly, the entire cup-and-handle pattern (so basically the May-now performance) is a big handle of a much bigger cup-and-handle pattern that you can see on the long-term USD Index chart.

This means that once the USD Index breaks and confirms the breakout above the previous highs (and it’s likely to do so in the near future), it’s likely to soar.

Impact on Precious Metals

This is bearish for the precious metals market – extremely so. Gold’s back-and-forth movement is likely about to end, just like junior miners are indicating. Gold’s next important stop (not the final end of the entire medium-term decline, though) is likely to be at its 2021 lows or close to them.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Junior Miners Fell Hard – And Gold Didn’t Even Lift a Finger

Without Gold’s Help

The GDXJ, a proxy for junior miners, just closed at the second-lowest level since April 2020 – and that is huge. What does it mean?

Well, it means that profits on our short positions in juniors increased once again. However, there’s more to yesterday’s session than just that.

Namely, due to yesterday’s 2%+ decline in the GDXJ ETF, it’s now clear that junior miners practically can’t wait to move to lower levels, as they are declining even without much help from gold.

Without even getting into specific calculations, it’s clear that junior miners are now trading very close to their May lows.

What is even more interesting, the GDXJ closed below the September 2021 low, and it didn’t immediately rally back up. The fact that junior miners declined below this low yesterday without a significant bearish push from gold and from the general stock market tells us that this time, the breakdown below the September 2021 low is likely to be confirmed.

This, in turn, means that juniors appear to be finally ready to head to much lower levels.

Here We Go Again

When the GDXJ moved below those lows (on May 12), I wrote that they declined too far too fast, and I switched our short positions into long ones. However, this time, it’s not the case that they declined too far too fast. Conversely, junior miners are now at/after a brief pause. This means that they are ready to fall lower.

Additionally, please note how perfectly the current situation resembles what we saw at the end of April and in the first days of May. The decline that preceded that previous consolidation was bigger than the recent one, so it’s quite normal that the consolidation that followed this time was also smaller and not as volatile. Other than that, the two moves are alike. Since a big move lower followed the previous consolidation, another move lower appears likely this time as well.

Also, as I wrote earlier, please keep in mind that juniors just declined without almost any help from gold. Unlike junior miners, gold is not at its September 2021 lows, and it’s not at its mid-May 2022 lows, either.

Miners tend to lead gold, and this time it’s quite clear that they are leading it lower.

Once the current consolidation in gold ends, it appears likely that gold will replicate (to a considerable extent) the decline that preceded the consolidation. This would imply a move back to gold’s previous 2021 lows.

This, in turn, would be likely to have a devastating impact on junior mining stock prices.

You have been warned.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks

Work in Progress

With the Fed’s hawkish hammer pounding the financial markets, the selling pressure coincided with events unseen since 2008. Moreover, with the work in progress to reduce inflation poised to push asset prices even lower, I’ve long warned that we’re likely far from a medium-term bottom. For example, I wrote on May 31:

With recession fears decelerating and optimism returning to Wall Street, the bulls are brimming with confidence.

Please see below:

Obraz zawierający stółOpis wygenerowany automatycznieSource: Investing.com

(…) [However], while U.S. stock indices rallied sharply last week, guess what else participated in the festivities?

Obraz zawierający stółOpis wygenerowany automatycznie Source: Investing.com

To explain, the table above tallies the performance of commodities over various time periods. If you analyze the vertical red rectangle, notice how most commodities rallied alongside equities. As a result, the thesis was on full display. 

When economic optimism elicits rallies on Wall Street, that same optimism uplifts commodities. Therefore, if the Fed tries to appease investors and passively attack inflation, it will only spur more inflation. 

As such, the idea of a “positive feedback loop” where ‘stocks rally, inflation cools [and] Fed tightening expectations abate” is extremely unrealistic. In fact, it’s the exact opposite. The only bullish outcome is if economically-sensitive commodities collapse on their own. Then, input inflation would subside and eventually cool output inflation, and the Fed could turn dovish.

However, the central bank has been awaiting this outcome for two years. Thus, my comments from Apr. 6 remain critical. If investors continue to bid up stock prices, the follow-through from commodities will only intensify the pricing pressures in the coming months. Therefore, investors are flying blind once again.

To that point, the S&P 500 reversed sharply over the last several days, and the S&P Goldman Sachs Commodity Index (S&P GSCI) followed suit.

For context, the S&P GSCI contains 24 commodities from all sectors: six energy products, five industrial metals, eight agricultural products, three livestock products, and two precious metals. However, energy accounts for roughly 54% of the index’s movement.

Please see below:

To explain, the green line above tracks the S&P GSCI, while the black line above tracks the S&P 500. As you can see, hawkish rhetoric and a 75 basis point rate hike had their desired effect.

Furthermore, I warned on Apr. 6 that higher asset prices are antithetical to the Fed’s 2% inflation goal. In a nutshell: the more the bull gores, the more inflation bites. I wrote:

Please remember that the Fed needs to slow the U.S. economy to calm inflation, and rising asset prices are mutually exclusive to this goal. Therefore, officials should keep hammering the financial markets until investors finally get the message.

Moreover, with the Fed in inflation-fighting mode and reformed doves warning that the U.S. economy “could teeter” as the drama unfolds, the reality is that there is no easy solution to the Fed’s problem. To calm inflation, it has to kill demand. As that occurs, investors should suffer a severe crisis of confidence.

Speaking of which, the fundamental thesis continues to unfold as expected. For example, Fed Chairman Jerome Powell said on Jun. 17: “The Federal Reserve’s strong commitment to our price stability mandate contributes to the widespread confidence in the dollar as a store of value.” Moreover, “The Fed’s commitment to both our dual mandate and financial stability encourages the international community to hold and use dollars.”

As a result, while I’ve long warned that unanchored inflation would elicit a hawkish response from the Fed and uplift the USD Index, the man at the top remains focused on the task at hand.

Please see below:

Obraz zawierający tekst, wewnątrz, zrzut ekranuOpis wygenerowany automatycznie Source: Reuters

Likewise, Fed Governor Christopher Waller said on Jun. 18:

“This week, the FOMC took another significant step toward achieving our inflation objective by raising the Federal Funds rate target by 75 basis points. In my view, and I speak only for myself, if the data comes in as I expect I will support a similar-sized move at our July meeting.”

Please see below:

Obraz zawierający tekstOpis wygenerowany automatycznieSource: Bloomberg

Thus, while I’ve been warning for months that the Fed isn’t bluffing, investors are suffering the consequences of their short-sighted expectations. For context, I wrote on Dec. 23, 2021:

Please note that when the Fed called inflation “transitory,” I wrote for months that officials were misreading the data. As a result, I don’t have a horse in this race. However, now, they likely have it right. Thus, if investors assume that the Fed won’t tighten, their bets will likely go bust in 2022.  

Continuing the theme, Atlanta Fed President Raphael Bostic said on Jun. 17: “We’re attacking inflation and we’re going to do all that we can to get it back down to a more normal level, which for us has got to be 2%. We’ll do whatever it takes to make that happen.”

As a result, the more investors bid up stock and commodity prices, the more “muscular” the Fed’s policies become.

Please see below:

Obraz zawierający tekstOpis wygenerowany automatycznieSource: Reuters

Thus, while Fed officials continue to press down on the hawkish accelerator, the plight of many financial assets highlights the ferocity of central bankers’ war against inflation. Moreover, with all bouts of unanchored inflation ending in recessions over the last ~70 years, more fireworks should erupt in the months ahead.

Short Squeeze 2.0

It’s important to remember that financial assets don’t move in a straight line. Therefore, while the fundamental outlook continues to deteriorate, the algorithms may spot bullish short-term trends that let the scalpers profit in the interim. For example, I noted on Jun. 15 that one-sided positioning could (and eventually did) spark a relief rally. I wrote:

The liquidation frenzy (margin calls) that erupted recently coincided with hedge funds going on the largest two-day selling spree on record. If you analyze the chart below, you can see that Goldman Sachs’ prime brokerage data shows the z-score of combined net dollars sold on Jun. 10 and Jun. 13 exceeded the sell-off following the collapse of Lehman Brothers in 2008.

Thus, while it’s far from a sure thing, it’s prudent to note how these variables may impact the short-term price action.

Source: Goldman Sachs

To that point, last week’s sell-off has too many market participants on one side of the boat. As a result, don’t confuse a short squeeze with bullish price action.

Please see below:

Source: Goldman Sachs

To explain, the blue bars above track the short-selling and short-covering activity of Goldman Sachs’ hedge fund clients. If you analyze the red line at the bottom, you can see that the z-score of hedge funds’ weekly short sales was the highest since April 2008.

In a nutshell: hedge funds shorted more stocks as the S&P 500 declined, leaving them highly exposed to a short squeeze. As a result, if the markets rally, consider the price action within the context of the above data.

Likewise, oversold conditions are also present.

To explain, the green line above tracks the percentage of S&P 500 stocks above their 50-day moving average. If you analyze the right side of the chart, you can see that only 2% of S&P 500 constituents hold the key level, and the reading is abnormally low.

For context, it’s a contrarian indicator, meaning that too much pessimism often elicits a short-term reversion. Moreover, with the dot-com bubble, the global financial crisis (GFC), the 2011 growth scare, the COVID-19 crash, and the 2018 sell-off the only periods with lower readings, it may take a shock-and-awe event to move the metric lower in the short term.

Also noteworthy, Bloomberg’s SMART Money Flow Index diverged from the Dow Jones Industrial Average (DJIA) late last week. For context, the indicator gauges the behavior of ‘smart’ investors that trade during the final hour of the day.

Please see below:

Source: Bloomberg/Zero Hedge

To explain, the green line above tracks the DJIA, while the red line above tracks Bloomberg’s SMART Money Flow Index. If you analyze the right side of the chart, you can see that the smart money expects some selling reprieve.

Finally, Bank of America’s Bull & Bear Indicator is at its lowest possible level. Again, this uses contrarian methodology, emphasizing how bearish over-positioning can spark sentiment shifts.

Source: Bank of America

The Bottom Line

There have been several fits and starts along the GDXJ ETF’s path to lower prices, and the medium-term fundamentals remain profoundly bearish. However, rallies can increase investors’ anxiety if they’re unsure of why the optimism has manifested. As a result, while the contrarian bullish stock data may uplift the PMs in the short term, a potential sentiment reversion doesn’t impact their medium-term outlooks.

Moreover, with the Fed hawked up and the developments bullish for the USD Index and U.S. real yields, the S&P 500 and the PMs should confront lower lows in the months ahead.

In conclusion, the PMs declined on Jun. 17, as volatility has asset prices gyrating sharply by the day. However, the frantic buying/selling activity is bearish and highlights the fragility of the financial markets. Therefore, more bouts of panic should erupt in the coming months, even if the selling pressure subsides in the near term.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

No Rosy Future Lies Ahead Gold Miners in the Stock World

Here Comes the Replay

Let’s not forget about the forest while looking at individual trees. By that, I mean looking at how gold stocks perform relative to gold. That’s one of the major indications that the current situation is just like what we saw at the 2012 top.

The situation in the gold stock to gold ratio is similar to what we saw in late 2012 and early 2013. The HUI to gold ratio invalidated its first attempt to break lower (marked with red, dashed lines), but after a corrective upswing, it then broke lower more decisively. That’s what I marked using black, dashed lines.

If the history is to rhyme, we’re about to see a profound decline.

Also, please note that the pattern that we currently see, which started in early 2016, is somewhat similar to what happened between 2003 and 2008.

Back in 2008, the breakdown from the consolidation resulted in sharply lower ratio values and much lower prices of gold stocks.

So, if the situation is analogous to 2012-2013, we’re likely to see a big decline in the following weeks/months, and if it’s analogous to 2008, we’re likely to see an enormous decline in the following weeks/months.

Declining stock prices would only add fuel to the bearish fire (after all, gold stocks are… stocks) and that’s exactly what’s likely to happen.

The Bearish Outlook for Precious Metals

The technical picture in the case of world stocks remains extremely bearish, and my previous comments on it were just confirmed. Here’s what I’ve been writing about the above chart for quite a few weeks now:

World stocks have already begun their decline, and based on the analogy to the previous invalidations, the decline is not likely to be small. In fact, it’s likely to be huge.

For context, I explained the ominous implications on Nov. 30. I wrote:

Something truly epic is happening in this chart. Namely, world stocks tried to soar above their 2007 high they managed to do so, and… failed to hold the ground. Despite a few attempts, the breakout was invalidated. Given that there were a few attempts and that the previous high was the all-time high (so it doesn’t get more important than that), the invalidation is a truly critical development.

It’s a strong sell signal for the medium – and quite possibly for the long term.

From our – precious metals investors’ and traders’ – point of view, this is also of critical importance. All previous important invalidations of breakouts in world stocks were followed by massive declines in mining stocks (represented by the XAU Index).

Two of the four similar cases are the 2008 and 2020 declines. In all cases, the declines were huge, and the only reason why they appear “moderate” in the lower part of the above chart is that it has a “linear” and not a “logarithmic” scale. You probably still remember how significant and painful (if you were long, that is) the decline at the beginning of 2020 was. 

Now, all those invalidations triggered big declines in the mining stocks, and we have “the mother of all stock market invalidations” at the moment, so the implications are not only bearish, but extremely bearish.

World stocks have declined below their recent highs, and when something similar happened in 2008, it meant that both stocks and gold and silver mining stocks (lower part of the chart) were about to slide much further.

The medium-term implications for mining stocks are extremely bearish.

Let’s take a look at the U.S. stock market.

Stocks verified their breakdown below the Q1 2022 low and then they declined. They broke below the May low, and they corrected a bit after the rate hike announcement, but they didn’t invalidate the breakdown. This means that the breakdown is almost fully confirmed.

The S&P 500 is unlikely to fall below 3,700 this week due to specific positioning in the options market, but it may do so next week.. At the time of writing these words, the S&P 500 futures are trading at around 3,704.

A weekly close below the May lows would be a very bearish indication for the following days and weeks, and as investors have more time to digest this critical information, their willingness to sell in the following week would likely grow.

The implications for the precious metals market, especially for silver and mining stocks, are very bearish.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.