Gold Breaks Down, Waving Good-bye to the 2019 Rally

The decline in gold, silver, and miners is developing just as we’ve been expecting it to. Most importantly, gold has just confirmed its breakdown and everything that we reported on gold’s outlook and price targets just got a huge confirmation.

Let’s take a look at what gold, silver, and mining stocks did in the last couple of days.

The Recent Days in PMs

Gold broke below the lowest closing price of September and it just verified this breakdown by closing below it for three consecutive trading days, and that includes the weekly close too. That’s a clear way for gold to say that a relatively broad top has been formed and that lower prices are going to follow.

Silver broke not only below its September low, but also below its rising red support line and the 50% Fibonacci retracement level. Technically, silver’s breakdown was even more important than the one in gold. The fact that the white metal managed to close the week below the combination of three support levels is bearish, but it will become much more so only after it’s verified.

  • So, isn’t it best to wait for the breakdown in silver to be confirmed, before aiming to profit on the decline?

That’s one way to do it, and if anyone wants to take this route – sure, it’s their capital. We think that having a position open right now is better from the risk to reward point of view because of the confirmed breakdown in gold, and because of multiple signs that we have covered in our previous analyses, and that we can’t discuss on each day – there’s simply not enough space and time to again go through all the bearish factors that remain in place right now.

It is usually the case that three consecutive closes below a certain level are necessary for the market to verify the breakdown, but given how strongly correlated gold and silver are, the odds are that a slide in gold will trigger a powerful slide in silver as well. And gold’s plunge could start any day, hour, or minute.

  • Ok, but what about the miners’ strength? They just moved higher yesterday, even though gold didn’t.

That’s true, but it’s also true that they did the very same thing just several days ago, during the previous pause. On November 5th and 6th, miners moved higher on an intraday basis even though gold rallied only once in intraday terms. Moreover, November 5th – the first of the small, two-day, corrective upswing – was the day when the HUI opened lower but then moved up during the day. That’s exactly what happened on Friday – the first day of the current, two-day, corrective upswing.

Given the above similarity and the very bearish follow-up that we saw on November 7th (big plunge across the precious metals’ board), it’s hard to view miners’ performance as bullish. Besides, if the miners are really showing strength here and the decline in gold and silver continues today, then the former will easily repeat their supposedly bullish signal, indicating a local bottom. At this time, such a scenario seems doubtful.

The gold market has been declining just as we expected it to and it’s likely to decline some more before we see a bigger turnaround. Knowing when to exit a short position and when to enter a long one is the essential part of making money on this move. They say that the universe does not reward one for what they know, but for what they do with it. The clear price targets and profit-take details for gold, silver, and miners included in the full version of today’s analysis – our Gold & Silver Trading Alert – are the actionable part that savvy traders really should take into account right now.

The above article is a small sample of what our subscribers enjoy on a daily basis. Check more of our free articles on our website, including this one – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. You’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts to get a taste of all our care. Sign up for the free newsletter today!

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Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and Care

Wait… Was That a Bullish Silver Reversal?

Silver plunged on Tuesday, just as it was likely to after the triple reversal that we’ve been writing about, and it was declining strongly during Wednesday’s pre-market trading. And then it all changed.

We doubt that and the below chart shows why.

About That Silver Reversal

We doubt the significance of yesterday’s reversal in silver, because daily corrections after the big daily declines are not something that indicate a reversal. Conversely, it’s something normal.

For instance, the intraday reversal that we saw in early February should have been – theoretically – followed by higher prices. It wasn’t. It was simply a breather that silver took before continuing to decline. These daily pauses don’t always take the same form. In late February, silver corrected by simply rallying a bit without an intraday reversal. And in late September, silver’s pause took form of a significant slowdown in the pace at which silver was declining.

In all above-mentioned cases silver resumed its decline shortly. So, is this time really any different? That’s unlikely.

Besides, silver had a good reason not to decline without looking back. The rising support line that’s based on the previous lows in terms of closing prices (May and July lows) was just reached in intraday terms. Since the line is based on daily closing prices, and we didn’t see a daily close below it yesterday, we don’t view yesterday’s price action as invalidation of the breakdown. The support held for now, but that’s not enough to make the outlook bullish.

Moreover, let’s keep in mind what we wrote in yesterday’s Gold & Silver Trading Alert about the size of silver’s decline so far:

Silver declined profoundly and it seems to be just starting its decline. Silver has recently outperformed on a very short-term basis after having formed a shooting star reversal. It doesn’t seem that just a one-day decline or something only a little bigger than that is enough to really be a reasonable response to multiple strong sell signs. Similar signals in the past used to be followed by multi-dollar declines.

The move that we’ve seen so far, is too small even compared to the lesser silver declines. And if we compare it to silver’s bigger declines, it’s almost nonexistent.

Even if we consider yesterday’s pre-market downswing to be a part of the decline, the entire move is still tiny compared to even the smaller of the previous declines. Taking this comparison into account it’s even more likely that yesterday’s reversal was not the end of the decline in silver but rather a pause within it.

All in all, predicting higher silver prices here based on yesterday’s small reversal is not justified – at least not yet.

Today’s article is a small sample of what our subscribers enjoy on a daily basis. For instance today, we have shared the analysis of yesterday’s price movement in gold and mining stocks, discussed their volume levels and relative sizes of the price moves. The extra detail that most investors will probably miss comes from the Stochastic Oscillator applied do the GDX ETF. As it turns out, the very recent top is much more important than it appears at first sight… Check more of our free articles on our website, including this one – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. You’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts to get a taste of all that our subscribers enjoy regularly. Sign up for the free newsletter today!

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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 Juniors Decline While Senior Miners Rally – What Gives?

The miners rallied? Oh, you mean the senior mining stocks (HUI, GDX…) – then yes, they moved a bit higher. But the junior miners (Toronto Stock Exchange Venture Index) just declined after confirming breakdown below the very important rising support line, which has profound implications for the next months. Truth be told, what’s happening in the senior miners can be used to indicate the next short-term moves as well, but we’ll start today’s analysis with the big picture.

The Mining Index That Is Breaking Down

On October 25, we wrote the following about juniors’ outlook:

What’s going on in this proxy for junior miners?

It’s declining – that’s what’s happening. In particular, it declined below the rising medium-term support line that’s based on two profound and clear bottoms: the 2016 and 2018 lows. And it’s not something that happened just yesterday. It happened about 3 weeks ago and unless the TSX Venture Index rallies today, this week’s close will mark the third consecutive weekly close below this line. That’s important, because this means that the breakdown – even though it’s tiny – was just confirmed. And confirmed breakdowns are likely to be followed by further declines.

Now, the more significant the support that was broken, the bigger decline one can expect, and the line that was just broken is definitely significant.

This means that the confirmed breakdown in the TSX Venture sends a huge warning to the gold, silver, and mining stock bulls. It’s not an immediate-term or even a short-term sign (we have plenty of them coming from other places), but it is a powerful sign pointing to sector-wide decline in the following months. We have been warned by yet another market. Those who refuse to listen will have to face the costly consequences.

The decline’s continuation means that everything that we wrote above is more than up-to-date. It was just confirmed by juniors’ price action. If the breakdown was not a big deal, the junior miners could have rallied, just like the senior miners did. But that’s not what happened. The previously broken support has now turned into resistance, and it makes the possible short-term upside very limited. The downside, however, is huge.

The nearest strong support is the 2018 low, but we doubt that it will hold, given that the recent breakdown took place so close to it. The price had already taken a breather and it’s ready to slide further. This means that the next likely target is the early-2016 bottom. That’s far from the current price, so the move is likely to significant. And, since the medium-term moves are more or less aligned between the major parts of the precious metals sector and the Toronto Stock Exchange Venture Index, it seems that gold, silver, and senior mining stocks have much further to drop in the following months too.

Speaking of senior mining stocks, let’s see how they performed compared to the price of gold and compared to other stocks.

Examination of Senior Miners

The HUI to gold ratio is a good way to measure gold stocks’ relative performance to gold. And this ratio is once again in the decline mode after a rather sharp counter-trend move. Why was the recent upswing a counter-trend move and not the start of a beginning of a new trend? Because the attempt to break above the declining resistance line failed miserably. The current small move lower in the ratio is the very early part of the price move right after the breakout was invalidated.

Invalidations are strong bearish signs in general. The line that was broken was based on two major (2011 and 2016) tops, therefore it’s important – and so is the invalidation of the breakdown above it. Focusing on what one saw in the previous several days is tempting, especially for beginning gold traders, but keeping the context in mind is absolutely critical if one wants to make serious gains in this – or, in fact, any other – market.

Moreover, let’s remember that the 2019 top in the ratio made the RSI indicator move above 70 and there were only two similar cases in the past 15 years. That was the late-2012 top and the 2016 top. Both were followed by substantial declines in the ratio, in gold stocks, and in gold itself. The implications here are clearly bearish for the following months and weeks. The above chart doesn’t signal anything for gold in the next several days, though. Given how rich this week is in terms of news, things could get quite volatile, especially given the looming reversal turning point, but we’ll get to that in the following text.

Today’s article is a small sample of what our subscribers enjoy on a daily basis. For instance today, we’ve also carried on with the gold stocks examination and shared the short-term PMs picture. Finally, we’ve also included a helpful summary of the gold move’s determinants at play. Check more of our free articles on our website, including this one – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. You’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts to get a taste of all our care. Sign up for the free newsletter today!

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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.

Powerful Lessons of Silver’s Daily Reversals

The way mining stocks behaved, and how gold closed relative to its previous tops also have important implications, but let’s start today’s analysis with the former.

Silver, the less valuable (at least so far) of the most popular precious metals and many small investors’ metal of choice, reversed in a particularly meaningful way.

Friday’s PMs Reversals

All three parts of the precious metals sector: gold, silver, and mining stocks (HUI is a proxy for gold stocks) moved to or above their respective 50% Fibonacci retracements based on the September – October declines, but only silver closed visibly below the 38.2% retracement. That’s one of the reasons why silver’s reversal was so important. Silver simply moved up and down the most. That’s far from it all, though. The big deal about this reversal is how similar it is to what silver has done in the previous years after similar reversals.

You see, silver is known to rally very high and outperform gold and mining stocks right before or while forming a top (often creating a fake breakout a.k.a. fakeout), but it doesn’t necessarily happen on one day. Silver might rally for a day or a few days, when gold and miners are not doing much, or simply visibly less than silver. At times, the above and the subsequent slide take place during the same trading day, but it is not very common. This means that such sessions are relatively easy to find among other days simply because they stand out.

We won’t be able to provide you with a complete list of silver’s profound daily reversals, but we will feature some of them that should make you think at least twice before viewing the initial “strength” in the white metal as being anything close to bullish.

Let’s start the silver time machine and set it back to about three years ago. Whoosh!

Silver’s Timeless Reversals

We’re now in the second half of 2016. Precisely, at the beginning of July. Silver just soared several dollars, but it reversed some of its daily gains. All silver analysts are cheering as silver ended the session higher than the previous one, and the white metal gained a bit more on the following day. That was true, but the perceived – bullish – implications were entirely off. Silver had just reversed and that intraday high turned out to be the yearly high.

Before declining in the most profound way (in October), silver flashed the daily reversal once again, at the end of September. One could say that the mid-August session was also a daily reversal, which also had bearish implications for the following days and weeks.

Based on what happened in 2016, it seems that silver’s daily reversals should at least raise an eyebrow.

Let’s get back to the time machine. This time, we’re setting it to 2013. Whoosh!

It’s mid-June 2013, and silver is after a steady decline. It just moved almost a full dollar higher during just one day, but it gave away most of these gains before the session was over. The following session opened a bit higher, but silver closed the day lower. And it declined on the next day. And the next one too. And then silver plunged almost $2 in just one day, only to decline some more in the following days. And it all started with the daily reversal.

The take-away is that silver’s daily reversals might be worth more than just a raised eyebrow.

The time machine still has some fuel left. Let’s get back one additional year. Whoosh!

It’s the first day of October 2012 and silver just rallied to new highs, after rising about $12 in less than 2 months. Silver didn’t manage to hold these intraday gains, and closed the day only a bit higher. The outlook seemed quite optimistic. But in reality, it was very, very, very far from that. The daily reversal marked the end of the volatile counter-trend rally, and started the decline that continued for years (in fact, the odds are that this medium-term downswing continues up to this day). In other words, since the first day of October 2012, we haven’t seen silver prices at higher levels.

All in all, silver’s daily reversals should do much more than just raise both of one’s eyebrows, especially when they take place in October. They should make investors prepare for much lower silver prices – if not immediately, then relatively shortly. And we have just seen a profound daily silver reversal on Friday.

Today’s article is a small sample of what our subscribers enjoy on a daily basis. For instance today, we’ve also covered the silver time machine lessons. Then, we discussed the outlook for gold and miners in more detail, and also gold performance from European currencies’ point of view. Finally, we’ve also included a helpful summary of the gold move’s determinants at play. Check more of our free articles on our website, including this one – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. You’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts to get a taste of all our care. Sign up for the free newsletter today!

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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.

This Sliding Index is About to Send GDXJ and Other Gold Mining ETFs Down

Before moving to the chart, a few words why this index is a proxy for juniors, and why it’s not as perfect. It can be used as a proxy for juniors because literally hundreds of junior mining companies are listed on this exchange. It’s not a perfect proxy, because there are also other companies listed there that are not even close to the mining business such as tech stocks.

So… What’s going on in this proxy for junior miners?

It’s declining – that’s what’s happening. In particular, it declined below the rising medium-term support line that’s based on two profound and clear bottoms: the 2016 and 2018 lows. And it’s not something that happened just yesterday. It happened about 3 weeks ago and unless the TSX Venture Index rallies today, this week’s close will mark the third consecutive weekly close below this line. That’s important because this means that the breakdown – even though it’s tiny – was just confirmed. And confirmed breakdowns are likely to be followed by further declines.

Now, the more significant the support that was broken, the bigger decline one can expect, and the line that was just broken is definitely significant.

But maybe the tech stocks just underperformed?

Fat chance – the Nasdaq is very close to its all-time highs, so the odds are that it was not the technology sector that dragged the index lower.

Please note how closely did the TSX Venture Index follow precious metals sector (lower part of the chart includes gold, silver, and HUI – proxy for gold stocks) higher in 2016 and how the subsequent decline happened at the same time. The 2018 decline was also more or less in tune. The sizes of the moves were different, but overall, prices moved in the same direction on average in the medium term.

This means that the confirmed breakdown in the TSX Venture sends a huge warning to the gold, silver, and mining stock bulls. It’s not an immediate-term or even a short-term sign (we have plenty of them coming from other places), but it is a powerful sign pointing to sector-wide decline in the following months. We have been warned by yet another market. Those who refuse to listen will have to face the costly consequences.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Gold & Silver Trading Alert – this analysis’ full version. There, we discuss gold outlook in more detail, recent platinum developments or the very short-term PMs situation. Finally, we’ve also included a helpful summary of the gold move’s determinants at play. Taken together, these paint a coherent picture of what’s likely to come in the following months. The full Alert includes detailed price targets for gold, silver, and the GDX ETF as well as related leveraged ETNs. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today.

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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’

Why It Makes Sense to Pay Attention to Platinum Now

“What? Why platinum?” – you’d probably ask back. And correctly so, this shiny metal has been declining in the previous years and only recently did it show some decent strength. And this may not sound important at all if you’re only considering investing in gold, silver, or mining stocks (like most precious metals investors) or are already holding them, but it actually is.

In the interconnected and globalized economy there are very few (if any) assets that can move totally on their own. In particular, we can see similarities in movement of assets from the same sector. Like gold and silver. And – in some cases – platinum.

This means that at times, looking at platinum can tell us something not only about the little silver (that’s what platina actually means), but about the rest of the precious metals sector. This appears to be the case right now.

What does the platinum chart say in general?

It’s emphasizing how strongly platinum rallied in previous months… After being so weak in the previous years. The long-term trend remains down as platinum didn’t break above the rising red resistance lines – the attempt to move above the lower one was invalidated. On a short-term basis, the rally was noticeable to say the least. What does it suggest?

It doesn’t suggest anything per se, but once we combine it with two details, it becomes important.

The first detail is that any market that is generally weak, but then acts strong at a certain time, might simply be rallying just because everything is rallying as the investment public (that enters the market last and buys close to the top) is buying everything without looking at its potential. And in particular if something looks cheaper than something else (e.g. because it was declining previously or precisely because it has unfavorable fundamentals). This means that just by looking at the performance of the weak parts of a given market one can detect the moment, when the investment public is entering the fray, and thus that the top is being formed.

The second detail is that platinum is currently the weakest part of the precious metals sector and this perfectly fits the above-mentioned type of reaction. The size of the platinum market is also relatively small. The fundamental situation for platinum is rather grim as it’s being used as a catalyst for diesel car engines that are no longer as often produced as in the past. Gasoline engines are growing in popularity relative to the former and in their case, palladium is used. Both could be hit when electric cars start to take over the market, but that’s something that will take many years. The fundamental outlook is one source of information and the technical situation is another one.

The technicals perfectly confirm the fundamentals. Platinum has been continuously underperforming gold despite local rallies. There were attempts to break above the declining long-term resistance line, but they all failed. The value of the ROC indicator in the upper part of the chart just reached its resistance line, which suggests that another downturn is likely. Simply put, the outlook for the platinum to gold ratio and platinum itself looks very unfavorable.

This, plus the simple fact that platinum seems cheap compared to gold makes it perfectly fit the situation described previously. Platinum is the weakest part of the precious metals sector and it had recently rallied.

This means that the precious metals investment public has likely entered the market in August – when platinum outperformed and topped. And what does it signal for gold and the rest of the PMs? This means that the major top was most likely formed not just in platinum, but in the entire precious metals market, as that’s the market most closely related to platinum.

All in all, even if you’re not interested in investing in platinum (and likely rightfully so), it’s worth paying attention to what this white metal is doing. It recently suggested that a medium-term top formed and that lower prices across the precious metals board are to be expected. This is yet another warning sign for the precious metals bulls. Surely, there will most likely be times when gold and silver are trading well above their 2011 highs, but it’s unlikely to take place before we see a big decline first.

Today’s article is a small sample of what our subscribers enjoy on a daily basis.For instance today, we’ve also covered silver outlook in detail, or the very short-term PMs situation. Finally, we’ve also included a helpful summary of the gold move’s determinants at play. Check more of our free articles on our website, including this one – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. You’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts to get a taste of all our care. Sign up for the free newsletter today!

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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.

Where Next for Oil After Its Double Reversal?

In yesterday’s Alert, we wrote the following:

Crude oil moved higher last week, especially on Thursday and Friday. This rally was in tune with the clear buy signals from the CCI and Stochastic indicators. While crude oil pulled back in today’s pre-market upswing, it’s unlikely that the rally is completely over at this time. Why? Because of two factors: one that we covered previously, and one that we didn’t cover so far.

The thing that we already discussed is the upside target based on the 38.2% Fibonacci retracement. It was not reached yet. Consequently, the price most likely has further to run.

The thing that we didn’t mention previously is the fact that crude oil just invalidated the breakdown below the rising dashed support line that’s based on the December 2018 and the August 2019 lows. Invalidations of breakdowns are bullish on their own. That’s yet another reason to expect the profits on the current crude oil long position to increase further.

The above generally remains up-to-date. The price of crude oil declined today and then rose back up and at the moment, our long positions are about $1.50 in the black. The question is whether we run for the hills because of this week’s decline, or do we wait for the price target to be reached.

The latter still appears to be the better idea. Applying the Fibonacci retracements to the October rally shows that today’s low formed almost exactly at the 61.8% Fibonacci retracement level. That’s the classic way for any asset to correct its preceding move and then to resume the trend. The short-term trend remains up, which means that the odds are that our target area will be reached.

One concerning matter is the situation in the USD Index. In the very recent past – the last several days – the USD Index and crude oil moved in the opposite ways. Thursday’s and Friday’s upswing in crude oil corresponded to declining USD. And the USD Index seems to be bottoming.

Then again, the relationship may be very short-lived and crude oil might be able to rally despite USD’s rally for a few days, anyway. After all, the USD Index is up at the moment of writing these words, and crude oil is almost done correcting its initial downswing.

Consequently, in our view, the current long position is justified from the risk-reward point of view.

If you enjoyed the above analysis and would like to receive daily premium follow-ups, we encourage you to sign up for our Oil Trading Alerts to also benefit from the trading action we describe – the moment it happens. Check more of our free articles on our website – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts. Sign up for the free newsletter today!

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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 Many Aligning Signals in Gold

Let’s start this week with a bigger update on multiple gold charts. There are so many reasons due to which gold is likely to decline in the following months – we’ll start with last week’s closing day analysis.

PMs on Friday

Gold, silver, and mining stocks declined, and the way in which they did, was very informative. Gold closed both the day and the week below the $1,500 level and the volume increased as gold declined. In fact, Friday’s volume was the highest one that we saw so far this month.

And gold stocks’ strength that we saw on Thursday? Gone and invalidated. Friday’s decline in the HUI Index erased almost the entire October upswing. Neither in silver nor in gold have we seen the same kind of weakness. The miners’ underperformance is huge and it serves as a major bearish confirmation.

Of course, that’s just the tip of the signal iceberg.

Let’s consider what gold did in the previous cases when it topped while forming a few lower tops.

The Message of Gold’s Lower Highs

The similar cases are characterized by the declining green lines and the thing that we would like you to focus on is the price of gold compared to the green lines and the 50-day moving average. The latter can be useful for many things, and in this case it’s helpful in determining whether gold declined significantly enough for the move to be the start of a bigger downswing.

There was practically only one case when gold moved above one of its previous highs and it was in 2018. Back then, gold moved to a new high before starting the decline. But where did gold decline before this move? Only slightly below the 50-day moving average and the MA was far from the declining green resistance line.

In 2016 and earlier in 2019 when the declining resistance line moved to the 50-day moving average, and gold declined below the latter, there was no new high and gold’s decline continued. In early 2019, it continued only for some time, but in 2016, it was followed by a major and sharp slide. The latter happened in October, by the way. All in all, it seems more likely than not that the counter-trend upswing is already over. And if it isn’t, then it’s very likely that gold won’t rally to new highs before declining significantly.

We had written that gold has likely topped in August as it moved up on huge volume. It was hard to believe, due to the same thing that caused the volume to be high in the first place – the extraordinary, emotional bullishness. The same thing accompanied the 2011 high and the 2018 high. Gold declined in September, but it’s unlikely that the decline is over. Both above-mentioned highs were followed by $200+ declines in gold and it doesn’t seem that this time is any different.

To be clear, it is different, but not in a way that would prevent gold from declining at least $200 from the recent high.

The move to which gold’s top and the current decline are particularly similar are the 1996 top and the subsequent slide to the final lows.

Gold’s Analogies

We wrote about it in mid-August, but it’s worth bringing up the most interesting chart from that analysis:

The shape of the decline and the subsequent upswing is very similar to what we saw in previous years. However, that’s not even the most important detail that makes the decline so likely. It’s the USD Index and gold’s link to it.

The 2014-2015 rally caused the USD Index to break above the declining very-long-term resistance line, which was verified as support three times. This is a textbook example of a breakout and we can’t stress enough how important it is.

The most notable verification was the final one that we saw in 2018. Since the 2018 bottom, the USD Index is moving higher and the consolidation that it’s been in for about a year now is just a pause after the very initial part of the likely massive rally that’s coming.

If even the Fed and the U.S. President can’t make the USD Index decline for long, just imagine how powerful the bulls really are here. The rally is likely to be huge and the short-term (here: several-month long) consolidation may already be over.

There are two cases on the above chart when the USD Index was just starting its massive rallies: in the early 1980s and in 1995. What happened in gold at that time?

These were the starting points of gold’s most important declines of the past decades. The second example is much more in tune with the current situation as that’s when gold was after years of prolonged consolidation. The early 1980s better compare to what happened after the 2011 top.

Please note that just as what we see right now, gold initially showed some strength – in February 1996 – by rallying a bit above the previous highs. The USD Index bottomed in April 1995, so there was almost a yearly delay in gold’s reaction. But in the end, the USD – gold relationship worked as expected anyway.

The USD’s most recent long-term bottom formed in February 2018 and gold [topped in August]. This time, it’s a bit more than a year of delay, but it’s unreasonable to expect just one situation to be repeated to the letter given different economic and geopolitical environments. The situations are not likely to be identical, but they are likely to be similar – and they are.

What happened after the February 1995 top? Gold declined and kept on declining until reaching the final bottom. Only after this bottom was reached, a new powerful bull market started. 

  • But gold just rallied so significantly in the last several months!

… And that’s most likely what people were saying in early 1995, while they were buying at the top.

It’s easy to get carried away by momentum and emotions that it generates. We’re here for you to analyze the market as objectively and with as much cold logic as possible. And the key points in gold’s supposedly bullish story simply don’t add up.

Gold topped on extreme volume in August, just as it did in early 1996. The view from other currencies apart from the U.S. dollar confirms how bearish the outlook really is for the following months. Let’s see the summary for full details.

Summary

Summing up, it seems that the corrective upswing in gold is over or almost over and that the big decline in gold is already underway (and that it had started in August as we had written previously). The invalidation of breakouts above the 2011 high in case of gold priced in the euro and the British pound confirm how bearish the outlook really is for the following months. Gold is likely starting to decline hundreds of dollars. If it rallies a few or even $20 dollars right now, it doesn’t matter much given the above. The profits from the short position in gold, silver and mining stocks are likely to be legendary, but the difficult part is not to miss the decline. That’s why we were so quick to get back to the short position in Friday. It was much better to do so than to risk missing out of this epic move.

Today’s article is a small sample of what our subscribers enjoy on a daily basis. For instance today, we’ve covered the chart takeouts of gold priced in the euro and in the British pound price for the yellow metal. We’ve also delved some more into silver and miners. Finally, we’ve also included a helpful summary of the gold move’s determinants at play. Check more of our free articles on our website, including this one – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. You’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts to get a taste of all our care. Sign up for the free newsletter today!

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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.

Did Gold and Silver Just Invalidate Their Short-Term Breakdown?

Gold, silver and miners all closed higher, so this question naturally follows – what can we make of their upswing? Let’s explore how the short- and long-term are affected exactly.

Let’s start with the update on the short-term moves. The timely question is just how much did the latest upswing change.

Gold, Silver and Miners on Friday

The timely reply is that even though gold moved visibly higher on Friday, it didn’t really change anything. Since the support line that gold broke previously is a rising line, it is now higher than it was during the breakdown. Friday’s upswing didn’t take gold above the line, which means that the breakdown wasn’t invalidated. This in turn means that nothing really changed from the short-term point of view in gold.

The same was the case with regard to silver. The white metal moved up just a little on Friday and it definitely didn’t invalidate the previous breakdown on that day. Silver moved visibly higher in today’s pre-market trading, but it didn’t rally above the rising support line – only moved back to it. This means that both:

  1. The breakdown is being verified.
  2. The white metal is outperforming gold on a very short-term basis.

Both are bearish, not bullish, factors.

The gold stocks (HUI Index) closed relatively high, but still very far from their previously broken uptrend.

Please note that the current moves in gold and the HUI Index are relatively similar to what happened in the first half of August. Gold is moving back and forth at similar levels and so is the HUI Index. The miners’ very short-term moves are bigger but the volume is lower this time, though. While the implications are not yet clear, the odds are that the current back and forth movement (a slight rally) is actually the right shoulder of the bearish head and shoulders formation. The volume should be relatively small during the right shoulder, and this has been the case recently. The implications are not clear yet, because the formation is not yet completed. Once gold confirms its breakdown below $1,490 and the HUI confirms its breakdown below (approximately) 200, the next big slide will follow. Given what is happening in the USD Index, the start of this slide is likely just around the corner.

The USD Index Reversal

What our Friday’s comments as well as the ones from Tuesday remain up-to-date (and if you haven’t read Tuesday’s analysis yet, we strongly encourage you to do so today for the long-term details):

It was yet another higher low. The ultimate low this year formed in early January. Then, we saw a higher low in late January. Then a higher low in March, then a higher low in June, then a higher low in mid-July, then two higher lows in August and finally the higher low that we saw this week. Higher lows mean uptrend. Trendlines are useful to detect the turnarounds and Fibonacci retracements tell us if the move in the opposite direction is significant enough to be viewed as a trend change. However, the underlying rule is simple. If the price is on average moving up, then the market is an uptrend. Looking at the relative placement of lows and highs tells us the same thing. By the way, the highs in the USD Index have also been increasing this year.

While the rising black support line was already broken, it didn’t cause the USDX to decline below the previous local low. It didn’t decline below the red line that’s based on the August lows either. And that’s despite Trump calling for zero percent rate policy or even negative interest rate policy.

In the previous Alerts we wrote that the market will be viewing the U.S. President’s tweets and comments as less and less important, given how often Trump changes his mind (remember how quickly North Korean “fire and fury” threats turned into a handshake?). The higher USDX lows confirm that. It didn’t matter that Trump demanded radically lower interest rates. The currency traders didn’t care much.

What did all the above result in? We have the USD Index above 98, close to the yearly highs. It mostly doesn’t react to bearish news and it comes back stronger after each of such news is presented.

The outlook for the USD Index remains bullish.

There’s one more detail about the USD Index chart that we would like to discuss. It’s the vertex of the triangle that’s based on the rising green resistance line and the rising black resistance line. The vertex is on Monday. That’s notable, because each line is based on three price extremes, which means that they both already proved to be important support / resistance lines. The vertexes of triangles tend to mark reversal dates, which means that the USD Index is likely to reverse its course on Monday or around it (perhaps even today).

Now, if the general trend is up, then the above is likely to mean a bottom in the USDX and then a rally. However, in order for the bottom to form, the price would have to come down. This means that the U.S. dollar could temporarily decline here, even despite all the bullish indications that we have right now.

This in turn means that gold, silver, and mining stocks could still move a bit higher before plunging. The emphasis goes on “could” and “a bit”. In the last few weeks, gold and silver managed to decline on their own – so even if the USD declines, it’s not a sure thing that the PMs will rally. And even if they do, they are unlikely to rally far. Still, it seems useful to know that such a possibility exists – so that a temporary upswing doesn’t make one question all the bearish factors that remain in place. Speaking of the bearish factors, here they are. The links below include the analyses with discussions of these main points.

The USD Index moved lower on Friday and then reversed before the end of the session. Given the proximity of the triangle vertex reversal, it could be the case that this was the final bottom before the next upswing. Alternatively, it could be the case that the USDX bottoms today or tomorrow. Either way, the start of the next rally is most likely very close.

What about the long-term point of view? Let’s check the current status.

The Long-Term Perspective in Precious Metals

Gold moved higher last week, but it didn’t entirely erase previous week’s decline. The volume was relatively low. The last time that we saw relatively low volume during a weekly upswing was in mid-August, and that week’s closing price was the top – most likely ending gold’s 2019 rally (in terms of the weekly closes, that is). Just because gold formed the major top, it doesn’t mean that it will now decline in a straight line. Conversely, please note that even the 2012-2013 decline had periodical 1-3-week-long corrections.

The RSI above 70 confirms gold’s very overbought status and the need to decline in the following weeks. The sell signal from the Stochastic indicator remains intact as well, pointing to lower gold prices in the following weeks.

Silver did very little last week so everything that we wrote previously on the above chart remains up-to-date. Silver invalidated its temporary breakout above the 61.8% Fibonacci retracement level based on the 2016 – 2018 declines. It additionally formed a huge reversal candlestick and it took place on enormous volume. This is a very strong bearish combination for the following weeks and months.

The RSI moved below 70 after being extremely overbought. Since 2007, all but one (the 2010 rally) case when it happened were followed huge declines. The 2008 top, the 2011 top, the late-2012 top, and the 2016 top were all preceded by this development. Sure, silver’s recent rally may appear bullish at first sight, but the history tends to rhyme. This time is unlikely to be different, and silver is likely to do what it’s almost always done in these circumstances: decline heavily.

Key Factors to Keep in Mind

Critical factors:

  • The USD Index broke above the very long-term resistance line and verified the breakout above it. Its huge upswing is already underway.
  • The USD’s long-term upswing is an extremely important and bearish factor for gold. There were only two similar cases in the past few decades, when USD Index was starting profound, long-term bull markets, and they were both accompanied by huge declines in gold and the rest of the precious metals market
  • Out of these two similar cases, only one is very similar – the case when gold topped in February 1996. The similarity extends beyond gold’s about a yearly delay in reaction to the USD’s rally. Also the shape of gold price moves prior to the 1996 high and what we saw in the last couple of years is very similar, which confirm the analysis of the gold-USD link and the above-mentioned implications of USD Index’s long-term breakout.
  • The similarity between now and 1996 extends to silver and mining stocks – in other words, it goes beyond USD, gold-USD link, and gold itself. The white metal and its miners appear to be in a similar position as well, and the implications are particularly bearish for the miners. After their 1996 top, they erased more than 2/3rds of their prices.
  • Many investors got excited by the gold-is-soaring theme in the last few months, but looking beyond the short-term moves, reveals that most of the precious metals sector didn’t show substantial strength that would be really visible from the long-term perspective. Gold doesn’t appear to be starting a new bull market here, but rather to be an exception from the rule.
  • Gold’s True Seasonality around the US Labor Day points to a big decline shortly.

Very important, but not as critical factors:

  • Long-term technical signs for silver, i.a. the analogy in terms of price to what we saw in 2008, shows that silver could slide even below $10.
  • Silver’s very long-term cycles point to a major reversal taking place right now and since the most recent move was up, the implications are bearish (this is also silver’s technical sign, but it’s so important that it deserves its own point)
  • Long-term technical signs for gold stocks point to this not being a new gold bull market beginning. Among others, it’s their long-term underperformance relative to gold that hint this is rather a corrective upswing within a bear market that is not over yet.
  • Record-breaking weekly volume in gold is a strong sign pointing to lower gold prices

Important factors:

  • Extreme volume reading in the SIL ETF (proxy for silver stocks) is an effective indication that lower values of silver miners are to be expected
  • Silver’s short-term outperformance of gold, and gold stocks’ short-term underperformance of gold both confirm that the precious metals sector is topping here
  • Gold topped almost right at its cyclical turning point, which makes the trend reversal more likely
  • Copper broke below its head-and-shoulders pattern and confirmed the breakdown. The last time we saw something similar was in April 2013, when the entire precious metals sector was on the verge of plunging lower.

Moreover, please note that while there may be a recession threat, it doesn’t mean that gold has to rally immediately. Both: recession and gold’s multi-year rally could be many months away – comparing what happened to bond yields in the 90s confirms that.

Copper moved above the neck level of its head-and-shoulders pattern that’s based on the intraday lows, but it didn’t invalidate the analogous level based on the weekly closing prices, so we don’t think it’s justified to say that this bearish formation was invalidated at this time.

Summary

Summing up, the big decline in the precious metals sector appears to be finally underway, and the temporary USD-reversal-caused rally in gold and silver is likely coming to an end. Let’s keep in mind that once the USDX takes off, it will likely serve as fuel to the fire-like decline in the PMs that’s already underway. The similarity to mid-90s continues to support much lower gold prices in the following months. All in all, it seems that what we see right now is the beginning of the final stage of the prolonged decline in the precious metals sector that started in 2011. On a short-term basis, it seems that we might get some temporary strength once gold moves to about $1,330 – perhaps within the next several weeks.

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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.

Rising Miners, Gold and Countdown to the Fed

It is usually the case on Fed days (and around them) that we see increased intraday volatility that doesn’t necessarily mean anything. Does it describe today’s situation also?

The explanation is quite straightforward. Overall, the investors and traders are not sure what will happen, but some of them are trying to bet on a more hawkish and some on a more dovish outcome. Large transactions trigger initial moves and other investors quickly jump in as they fear missing out on the trade that is “just unfolding”.

In reality, rarely any trade is really unfolding just before the news is released – the very short-term and volatile moves are just like people that run around because they can’t sit in place while waiting for something or someone. This running around doesn’t indicate a start of a journey, and the very short-term up- and downswings right before the major news is released can be just as informative – barely so. Unless the markets are significantly surprised, the preceding trends are likely to be continued after the interest rate decision is made and the dust settles. And the preceding trend in the precious metals market remains down. Let’s keep in mind that even though gold moved significantly up in the last couple of months, silver and gold stocks and silver stocks moved just a little higher from the long-term point of view. In other words, most of the precious metals sector didn’t rally significantly in recent months.

Let’s take a few questions and answer them looking at the charts.

Precious Metals, Miners and Yesterday’s Session

But maybe yesterday’s upswing changed anything in gold or silver?

It didn’t. Just as gold and silver were trading below their respective rising support lines on Monday, the same happened yesterday. Silver is down in overnight trading, which makes it clear that the breakdown was confirmed instead of being invalidated.

Of course, both metals – especially silver – could move higher once again today, but such a move would likely not last for more than a day or a couple of them. The few hours before and after the interest rate announcement and the following press conference could be particularly volatile. Please keep the above in mind if gold and silver move higher during this time – it will almost certainly be a fake move. In particular, silver is known for false breakouts, so it could be the case that it moves even above $18.50 today only to fall hard in the following days and weeks.

Of course, just because it is possible, it doesn’t mean that it’s likely. It’s best to be positioned in tune with the trend. However, it’s also good to be aware of the possibility that some chaotic movement might be seen on particular day, so that one doesn’t unnecessarily panic over a move that is unlikely to be meaningful or lasting.

Ok, but what about miners’ upswing? Doesn’t their strength indicate a rally is just around the corner?

Not really. Let’s keep in mind the following:

  1. The gold miners were first to break below their rising support line and they continued to underperform for days.
  2. Miners moved to the 38.2% Fibonacci retracement level based on the most recent upswing, which means that some kind of very short-term rebound was relatively likely
  3. It’s just one day of strong performance relative to gold and one swallow doesn’t make a summer.

Yesterday’s upswing falls into the “normal” category of the things that we might expect a market to do after decline that’s already quite sizable. Especially that the Fed’s interest rate announcement is today and some kind of increased short-term volatility is likely.

If miners continue to show strength while gold and silver invalidate their breakdowns, it might mean that we’ll see another short-term upswing before the decline resumes. At this time though, the odds continue to favor decline’s continuation without a meaningful move higher beforehand.

Besides, yesterday’s upswing in the gold stocks was barely visible from the long-term point of view. The HUI Index invalidated the small breakout above the 61.8% Fibonacci retracement and has been declining almost relentlessly ever since. Yesterday’s upswing is a barely noticeable breather in this decline.

Let’s recap the facts to pay attention to.

Key Factors to Keep in Mind

Critical factors:

  • The USD Index broke above the very long-term resistance line and verified the breakout above it. Its huge upswing is already underway.
  • The USD’s long-term upswing is an extremely important and bearish factor for gold. There were only two similar cases in the past few decades, when USD Index was starting profound, long-term bull markets, and they were both accompanied by huge declines in gold and the rest of the precious metals market
  • Out of these two similar cases, only one is very similar – the case when gold topped in February 1996. The similarity extends beyond gold’s about a yearly delay in reaction to the USD’s rally. Also the shape of gold price moves prior to the 1996 high and what we saw in the last couple of years is very similar, which confirm the analysis of the gold-USD link and the above-mentioned implications of USD Index’s long-term breakout.
  • The similarity between now and 1996 extends to silver and mining stocks – in other words, it goes beyond USD, gold-USD link, and gold itself. The white metal and its miners appear to be in a similar position as well, and the implications are particularly bearish for the miners. After their 1996 top, they erased more than 2/3rds of their prices.
  • Many investors got excited by the gold-is-soaring theme in the last few months, but looking beyond the short-term moves, reveals that most of the precious metals sector didn’t show substantial strength that would be really visible from the long-term perspective. Gold doesn’t appear to be starting a new bull market here, but rather to be an exception from the rule.
  • Gold’s True Seasonality around the US Labor Day points to a big decline shortly.

Very important, but not as critical factors:

  • Long-term technical signs for silver, i.a. the analogy in terms of price to what we saw in 2008, shows that silver could slide even below $10.
  • Silver’s very long-term cycles point to a major reversal taking place right now and since the most recent move was up, the implications are bearish (this is also silver’s technical sign, but it’s so important that it deserves its own point)
  • Long-term technical signs for gold stocks point to this not being a new gold bull market beginning. Among others, it’s their long-term underperformance relative to gold that hint this is rather a corrective upswing within a bear market that is not over yet.
  • Record-breaking weekly volume in gold is a strong sign pointing to lower gold prices

Important factors:

  • Extreme volume reading in the SIL ETF (proxy for silver stocks) is an effective indication that lower values of silver miners are to be expected
  • Silver’s short-term outperformance of gold, and gold stocks’ short-term underperformance of gold both confirm that the precious metals sector is topping here
  • Gold topped almost right at its cyclical turning point, which makes the trend reversal more likely
  • Copper broke below its head-and-shoulders pattern and confirmed the breakdown. The last time we saw something similar was in April 2013, when the entire precious metals sector was on the verge of plunging lower.

Moreover, please note that while there may be a recession threat, it doesn’t mean that gold has to rally immediately. Both: recession and gold’s multi-year rally could be many months away – comparing what happened to bond yields in the 90s confirms that.

Copper moved above the neck level of its head-and-shoulders pattern that’s based on the intraday lows, but it didn’t invalidate the analogous level based on the weekly closing prices, so we don’t think it’s justified to say that this bearish formation was invalidated at this time.

Summary

Summing up, the big decline in the precious metals sector appears to be finally underway as gold and silver are plunging even without a rallying USD Index. And the PMs’ decline started right after the U.S. Labor Day, as we have described. Once the USDX takes off, it will likely serve as fuel to the fire-like decline that’s already underway. The similarity to mid-90s continues to support much lower gold prices in the following months. All in all, it seems that what we see right now is the beginning of the final stage of the prolonged decline in the precious metals sector that started in 2011. On a short-term basis, it seems that we might get some temporary strength once gold moves to about $1,330 – perhaps within the next few weeks.

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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.

Do Two Weekly Declines Make a Case for Lower Gold Ahead?

Only except that they won’t – at least not for several months. Is anything different now than it was during other gold corrections in the past couple of months? Yes. There are three major details that prove that this time really is different. First, it’s the fact that gold declined for two weeks in a row and it’s the first time since April when this happened. Second, gold and silver declined even without USD’s strength and the latter is refusing to decline even despite bearish news. Third, gold stocks just closed the week below their rising support line, and their August high. If anyone doubted whether mining stocks are underperforming, that’s the final proof.

Let’s take a closer look at what happened with the yellow metal.

Another Weekly Reversal in Gold

Gold has not only declined in the last two weeks. It has actually reversed, and it happened on significant volume. It also happened while the RSI indicator has been above 70, indicating overbought conditions.

This is a very powerful combination of bearish factors and the sell signal from the Stochastic indicator serves as yet another short-term confirmation. But, as you know, these are just short-term confirmations of much bigger signals that we outlined previously:

In particular, it’s worth keeping in mind enormous potential of the USD Index. It’s after a major breakout in 2014/2015 and three verifications thereof. The 2017-2018 decline which seems huge on its own, was just a verification of a much bigger (and thus more important) pattern.

The USD Index Patterns

The USD Index may have not broken above the rising green neck line of the likely inverse head-and-shoulders pattern, but it managed to close the week without breaking below the rising support line. No political tweet was able to trigger a breakdown, or a visible comeback below the May highs.

Investors and analysts tend to forget about the big picture, while focusing on the short-term movement, which means that the more important development that last week’s close meant, has gone under the radar.

And that was the fact that the USDX finally closed the week above the 61.8% Fibonacci retracement level based on the 2017 – 2018 decline. Technically, this means that the 2018 – now upswing should no longer be viewed as a correction within a downtrend, but rather as a new uptrend.

Please note that even though gold’s upswing from the 2015 low was sizable, gold didn’t move above the 61.8% Fibonacci retracement based on the 2011- 2015 decline. This upswing can be viewed as – big, but still – just a correction within a downtrend.

With the USD Index in a massive rally mode, and gold just having shown two major weekly reversals, the next several months look particularly unfavorable for the shiny metal.

The previous links include details of the analysis of the gold stocks to gold ratio and the situation in copper, but it seems it would be a good idea to show you how the situation developed recently.

The Copper and Miners-to-Gold Clues

In short, copper’s huge head-and-shoulders formation is no longer “potential” – it’s very real. The H&S pattern was completed and now the price is moving back to the neck level as the final verification. Such “goodbye kisses” are quite common and they are not bullish. They are the final chance to take advantage of the formation and get out of copper and anything that’s likely to fall with it. This includes the precious metals market. The biggest decline in the latter took place right after copper completed its previous huge head-and-shoulders pattern in 2013.

The downtrend in the HUI to gold ratio clearly remains intact. The rally was a few times smaller than the one that we saw in 2016 and it appears to be over. It broke slightly above the declining resistance line based on the 2011 and 2016 tops and then it invalidated this breakout, thus flashing a sell sign.

This happened right after the sell signal from the RSI indicator. Please note that in the past decade, there were only three times when the RSI moved to the 70 level:

  • in 2012 (right before the huge slide started)
  • in 2016 (at the top)
  • in 2019 at the end of the recent rally

The rally appears to be over and lower precious metals values are to be expected.

The Daily PMs Perspective

On a short-term basis, we see that silver is falling down even faster than it had previously rallied, and we see that gold stocks just broke below the rising support line. This means that our Friday’s comments remain up-to-date:

Gold, silver, and mining stocks have all declined profoundly, and it seems to have been a very good decision to enter short positions in silver yesterday, while it was still trading at about $19.35. It’s already more than $1 below this price.

However, as we wrote earlier, that’s most likely nothing compared to what’s to come.

Gold futures closed only a bit below the late-August lows and they are trading close to the mid-August lows so far today, so there was no major breakdown in gold just yet.

The same goes for silver – even though silver futures moved to about $18 in today’s pre-market trading, there was no breakdown below the rising support line that currently provides support at about $17.50.

The HUI Index declined below the late August lows, but didn’t slide below its rising support line so far either. Still, given today’s pre-market slide in gold and silver, it appears that if even if gold and silver don’t decline more today, the HUI will slide further. Gold moved below yesterday’s lows, and silver’s slide is even more profound. This means that the HUI is also likely to move below its yesterday’s lows, perhaps significantly so. This, in turn, means a breakdown below the rising support line that’s based on three previous lows. This breakdown will be an important confirmation of the bearish case in the short run.

The short-term breakdowns are not as important as what happened on the longer timeframes, though.

Mining stocks’ weakness is being confirmed and the breakdown is its clear sign.

Summary

Summing up, the big decline in the precious metals sector appears to be finally underway as gold and silver are plunging even without a rallying USD Index. And PMs’ decline started right after the U.S. Labor Day, as we have described. Once the USDX takes off, it will likely serve as fuel to the fire-like decline that’s already underway. The similarity to mid-90s continues to support much lower gold prices in the following months, and the True Seasonal patterns continues to favor lower gold prices in the following weeks. All in all, it seems that what we see right now is the beginning of the final stage of the prolonged decline in the precious metals sector that started in 2011. On a short-term basis, it seems that we might get some temporary strength once gold moves to about $1,330 – perhaps within the next few weeks.

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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.

Two Views of Yesterday’s Gold Strength

Let’s dive in and assess whether a technically important gold move has happened yesterday, or not. Examination of the other markets will show us whether it’s the real deal, or not.

In yesterday’s Alert, we warned you about the upcoming volatility preceding the Fed interest rate decision and the following press conference. So far, we seen relatively little volatility, but it was already notable. More could follow and it’s now particularly important to stay focused on what really matters – the trends and technical signals that we saw before the forthcoming news-driven dust settles.

In gold, we saw an invalidation of the breakout above the pennant pattern. In silver, we saw exceptional strength in the short term. Gold miners broke below their rising support line and just verified the breakdown below it. This is a bearish combination, even if we don’t take into account the multiple similarities between now and the late 2012 top in the entire precious metals sector, especially the ones in silver (the same retracement) and the ones in the gold stocks to gold ratio that we explained yesterday.

Checking Yesterday’s PMs Action

While gold miners certainly closed below their rising support line and there was no new breakout in silver, it seems that gold once again broke above the pennant pattern.

But It’s not really the case.

Looking at gold futures based on a more detailed chart from a different chart provider, we get a different picture – there was no breakout. The outlook certainly could become bullish in the following days and weeks, but it’s unlikely and it hasn’t happened yet.

Silver’s move may appear to be making the silver forecast bullish, but please note that the white metal already gave up yesterday’s gains entirely at the moment of writing these words.

To be honest, there’s not much that we can add in today’s short-term analysis to what we wrote yesterday, but since the month is almost over and the key comments from the Fed are to be released today, we would like to speculate a bit about where the month could end and what it might imply.

The Gold Chart Scenarios

Even though the month is not yet over, we can already see that the volume that accompanied the July price change was huge. Actually, it’s an understatement. It is the biggest monthly volume ever. The other two major monthly volume levels were recorded right at the 2011 top and at the 2018 top (in terms of the monthly closing prices). This alone is something that should make you question the logic behind buying gold now as opposed to buying it after a sizable price decline takes place.

But there’s actually more to the big volume than the above. We mentioned this gold trading tip numerous times, but it’s worth repeating once again. The reversals, for instance, the shooting star candlesticks, need to be confirmed by sizable volume in order to be reliable. The volume is already extreme.

Wait, we don’t have any reversal candlestick just yet.

That’s true, but today is the final day of the month, and it’s the day when the Fed provides critical clues and that means that gold could change its course quite rapidly. It’s certainly possible that gold rallies based on the – likely – interest rate cut, but let’s keep in mind that gold might actually decline even though the Fed is likely to lower the interest rates. Why? Because practically everyone expects the rates to be lowered, while some investors expect them to be lowered by 50 basis points, not just 25. They are likely to be disappointed (the Fed is unlikely to shoot a bazooka as a warning, insurance shot), which means that the interest rate decision – even though it is likely to be a rate cut – might be actually viewed as something hawkish. Again – not because it is such per se, but because it is hawkish compared to the average expectations.

Quite a lot will depend on what the Fed says during the press conference, so the final part of today’s session will likely be quite volatile. And the implications of the entire monthly price changes will depend on it. The volume is already huge, so it will confirm what happens in terms of price. If gold rallies, we will have a conflict between bearish implications of huge volume per se, and bullish implications of a rally on big volume. But, when gold reverses this month, the extreme volume will make the gold reversal very, very, very profound.

There’s one more thing that we would like to discuss about the Trump – Fed conflict regarding interest rates. Trump wants lower dollar in order to boost U.S. exports, economic numbers, and stock prices – the last two are the statistics that will be used to measure the success of his presidency. And he definitely wants it to look as good as possible – that’s why he’s been pressing so hard for lower interest rates instead of higher ones.

Let’s see what happened after the Fed changed its course and bowed to the pressure.

The expectations regarding interest rates are already much lower. But is the U.S. dollar lower?

Framing the USD Index

It’s not. Of course, the U.S. currency reacted just as it was supposed to – initially. It declined based on dovish comments. But, once it was all said and done (mostly said), the USD soared back up. It’s now very close to its yearly high, even though the expectations regarding interest rates are entirely different.

The Fed sees that lowering rates didn’t work and – most importantly – so does Trump. It either already became obvious to him or it will become obvious that the market forces are too strong to keep the U.S. currency at low levels. What then?

Replying to this question is difficult when we think about the economic environment, geopolitics, and financial markets. But it’s easy when we get back to the likely core of the decision to keep the dollar lower in the first place.

Trump wants to look good and wants his presidency to be viewed as successful and that’s why he wants the lower U.S. dollar. What if we can’t get it no matter what he does (which appears to be the case)? Then there’s only one thing left to do. Find something or someone else to blame, while allowing the inevitable (rallying USD) to happen. The Fed lowered interest rates? Maybe it didn’t lower them soon or significantly enough. Trade war with China? Europe? Or maybe Mexico or the war drums beating on Iran? There will definitely be someone to blame for declining stock market and soaring USD. Trump said so many times that he wants lower USD that if anything unpleasant (plunging stock prices?) happens, it’s very easy to blame it on too high USD, which is fault of everyone except him (right?).

The bottom line is that USD’s rally is definitely possible despite the current political setups and so is gold’s decline.

Summary

Summing up, the breakdown in the gold stocks, the multiple signals coming from the silver market and strong bearish indications from the gold stocks to gold ratio clearly confirm that the rally in the precious metals sector has most likely already ran its course. Moreover, let’s keep in mind that gold has recently invalidated its breakout above the previous highs, the late-2013 highs, and the upper border of the pennant pattern, which is also a very strong bearish sign. The situation in the currency market confirms the bearish outlook for the PMs. In those circumstances, we simply cannot forecast gold at higher levels in the medium term. There will most likely be times when gold is trading well above the 2011 highs, but they are unlikely to be seen without being preceded by a sharp drop first.

Today’s sessions could be volatile due to the interest rate decision and the follow-up press conference, but once it’s all said and done, the main trend is likely to resume. And the main trend is down.

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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.

Truly Epic Silver Signals: Vying for Your Attention

There’s not much to say about yesterday’s session while looking at gold and mining stocks – they both moved a bit lower. But things are very much different when we look at silver. The white metal jumped higher decisively, rallying above the June highs and the SLV ETF soared on volume that we haven’t seen so far this year. The volume was even higher than what we saw at the 2016 top! It was bigger than what we saw at the late-2012 top (that one was close, though)! In fact, the only year when we saw higher daily volume during silver’s upswing was 2011. Except for THE silver top, the mid-2012 rebound, and the late-2010 massive run-up, all other cases when silver soared, were accompanied by volume what was lower than what we saw yesterday. And these were almost always major tops. Combining this with the shape of yesterday’s candlestick in the SLV gives us very clear indications. They are beyond-words bearish.

Let’s take a look at the chart for details.

Silver’s Volume Record

SLV may be viewed as paper silver by some (just as GLD may be viewed as a form of paper gold), but it can be very useful for detecting market turnarounds, because of its relative popularity among individual silver investors.

Looking at the past year, it’s obvious that the shape of yesterday’s candlestick is just like what we saw at the 2019 high and at the mid-2018 top. Silver opened the day higher, then rallied only to give away the intraday gains before the session was over. This all happened while gold and mining stocks declined a bit, so it was a crystal-clear case of silver’s outperformance.

Reversals, such as shooting stars in silver, should be confirmed by big volume as the session should represent how bears overwhelmed bulls in a fierce battle. In this way, the session shows that bulls gave their best but still lost to bears. From that point, lower prices are to be expected as bears have proven to be stronger, and because when nothing happens in the market (there are no buyers and no sellers), the price simply falls. The important part of all this is volume, because its absence means no fierce battle. This means no profound victory of bears – just a back-and-forth action without much meaning.

To say that yesterday’s volume was big would be like saying that continuously smashing one’s face against the wall is not the best use of their time. It’s true, but it doesn’t cover the full story either. The silver volume was huge. It was breathtaking, and it was epic. The above chart is not big enough to show to huge it really was, because there is nothing else that’s similarly big.

Silver’s Volume Record: Full Perspective

We enlarged the volume readings and we added a horizontal red line, to make it clear when volume was bigger than it was yesterday – we haven’t seen it as high as we did yesterday since late 2011. Of course, we mean only the days when silver moved higher.

We marked other cases when volume was somewhat similarly high or when it was big on relative basis (yesterday it was huge in both: absolute and relative terms). In the vast majority of cases, these were excellent opportunities to short silver. Yes, it’s counter-intuitive (silver rallied on big volume so it’s showing strength, right?) and counters the technical-analysis-basics, but it’s highly effective. And please remember that we are talking about the volume alone here.

The shape of yesterday’s session was very bearish on its own, and so is the fact that silver clearly outperformed gold. The combination of all three factors (volume, reversal, outperformance) is what makes yesterday’s session the clearest bearish silver sign that we saw in many months.

You may think that we’re crazy, you may think that were perma-bears (which is not true), or that we hate silver (actually, that’s our preferred metal of choice for the long run, but there are some cases when it’s better to be invested in something else), but that’s not true. If there was just one trade to be made based on our analysis this year, we would suggest it being the short position in the precious metals market right now. The silver signals are one of the most effective precious metals trading tips and we just saw a three-strong combination of epic proportions that happened right after we had already seen multiple non-silver signs pointing to the decline in the precious metals market in the upcoming months.

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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 Battle Is On: Gold Price vs. the HUI Miners

Are gold miners leading gold higher just like it was the case many times, or “this time is different”? Let’s delve into both the gold downswings and upswings. Sure, gold is likely to break above $2,000 eventually, but when and how this is going to happen will likely have a profound impact on your savings. And it’s up to you to make it affect you in a very positive way. So, are things this time really different?

Actually, this time does indeed appear to be different. Why? Because all the other important markets and gold stocks’ own long-term perspective point to lower prices, just like gold does. Let’s take a closer look.

Topping Signs in Gold and Silver

First of all, we see that gold has broken below the rising support line based on Friday’s closing prices. It can be clearly seen on the above chart, even though the previous several days’ action is particularly clear. On a side note, on Friday we featured a gold chart from another provider, and already showed our subscribers that gold had already broken and confirmed this breakdown in the previous days. Either way, we know have the most profound confirmation of the breakdown – the weekly closing price, and the implications are very bearish.

Also, please note that the volume that accompanied Friday’s upswing was the lowest that we’ve seen in about a month. It was not small in absolute terms, but the relative comparison suggests that the buying power for gold is drying up.

Let’s check what’s happening in the silver world.

Pretty much the same thing. Silver confirmed the breakdown below its rising support line, then confirmed it in all possible ways, including by last week’s weekly closing price. The implications are clearly bearish, especially that the breakdown materialized right after the highly effective topping sign – silver’s outperformance of gold that was accompanied by huge volume. We marked similar cases with yellow rectangles, and they were all major tops.

The outlook based on the short-term gold and silver charts is clearly bearish. But that’s not the case when one looks at the gold stocks’ chart.

Meanwhile in the Mining Stocks…

The HUI Index closed above the previous highs, and most importantly, it closed above the June high for three consecutive trading days. It also closed above it in terms of the weekly prices. Whatever bearish words we wrote about the breakdowns in gold and silver, turns to bullish in case of the gold mining companies.

Either metals, or miners will have to give in to the other.

But, is the mining stock sector comprised of just gold miners that are included in the HUI Index? Absolutely not. In case of the broader (i.e. covering more stocks) GDX ETF, there was no confirmed breakdown. We saw just another daily attempt to break above the June high after Wednesday’s attempt was invalidated on Thursday. GDX does not confirm the bullish nature of the HUI’s breakout.

And what about the silver stocks?

There was no breakout to speak of and the outlook, in this case, remains strongly bearish. Strongly, because of several factors, one of the most important being the extreme volume reading that we just saw.

It happened after a sizable rally and at that time we emphasized that it very likely marked the end of the rally. It appears that it was indeed the case. Silver miners didn’t move above the extreme-volume high ever since.

Another reason for the situation to be bearish is the recent very overbought reading from the RSI indicator. It was above 80 and that happened only several times in the previous years. The only two bullish cases when that happened, were during 2016 and when we saw breakout to new highs in 2010. The size of the current upswing clearly shows that this move is not like the 2016 move and the situation in gold and silver clearly shows that this situation doesn’t look like what we saw in 2010 either.

What we see now, is much more similar to what happened in late 2012 or mid-2014, which is where silver miners topped along with gold stocks, and the underlying precious metals: silver and gold.

With such meaningful bearish indications from the silver miners, should one trust the confirmation of the breakout in gold stocks, especially in light of no confirmation from the GDX ETF? Absolutely not.

Let’s see how it all looks from the broad perspective.

The Big Picture in Gold and Silver

Gold is after a powerful weekly reversal that materialized on huge volume, which took place while gold failed to break above the mid-2013 high and while the RSI recorded very overbought readings.

Does the above look bullish at all? No, it’s one of the most bearish combinations imaginable.

If you had to look at the above chart for just a second, and then recall from memory where silver price was trading, you’d probably say that it’s at the multi-year lows. And that’s true – from the long-term point of view, the recent move higher is barely visible and given silver’s volatility, the 2015 low is within the range of a single day’s decline. This may seem impossible if you’ve been drawn to the silver market just recently, but there have been many times in the last several years, when silver moved a few dollars in just one day.

There will definitely be days when silver moves more than $1 during the session or even outside of it. There will also likely be days when silver moves more than $10 in one day, but we will most likely have to wait silver to break above the 2011 high first.

If the second most popular precious metal refuses to confirm the most popular metal’s rally, can the latter really be trusted? When Charles Dow formulated his Theory, he emphasized that in order for a primary trend buy or sell signal to be valid, both: the Industrial- and the Rail Average must confirm each other. The same principle can be applied to the precious metals market and the bullish picture for the PM sector simply doesn’t hold when looking at silver, and the silver price prediction tool.

Before moving further, please make sure that you take note of and keep in mind that near-perfect analogy in terms of price to what happened in 2008. The 2015 bottom and the late-2017 bottom are the staring points of the analogy and the following size of rallies and declines are almost identical. The same goes for the price levels that were reached. This analogy currently suggests that silver will need to move below $10, and most likely below $9, before it can rally profoundly once again.

And what about the gold miners?

The Miners’ Big Picture

In short, our previous comments on the above chart, remain up-to-date:

Even taken together, this and last years’ rally in the gold miners is very small to compare to the 2016 upswing, let alone to the enormous 2011 – 2016 decline. It’s just a relatively small correction within a much bigger downtrend. By being bearish here, we are not against the major trend – we are in tune with it.

Some may say that the HUI Index broke above the very long-term declining resistance line based on the 2011 and 2012 tops, which makes the outlook bullish. However, they forget that the same thing happened at the very top that we saw in 2016. And they forget that given where gold is right now (above its 2016 high) the size of the recent upswing in the miners is very weak.

The current move is much more similar to the 2014 or 2015 corrective upswings than it is to the 2016 rally or to the beginning of the 2000s bull market. And what followed the 2014 and 2015 corrections? Big slides during which miners didn’t look back until they reached new lows.

The more fundamental thing about all this that was mentioned in the question is that the miners are suggesting that this is not the beginning of a new powerful upswing that would take gold much higher eventually. It strongly indicates that we will need to see a bigger price decline first.

(…) Please take a look at the rally that we saw right before the late 2012 top that directly preceded the biggest decline in the miners of the last several decades. It was not as big as the current upswing, but it was only a little smaller (of course percentage-wise – in absolute terms, the previous rally was much bigger). But when we compare both to the sizes of the preceding downswings (the 2011-2012 decline and the 2016-2018 decline), we see that the current rally is a bit smaller.

The previous upswing corrected a bit over 50% of the preceding decline, and the current upswing corrected a bit over 38.2% of the preceding decline (and bit less than 50%). The final part of the late-2012 upswing was similarly sharp as the current upswing is. However, while the late-2012 top in gold was very close to its late-2011 top, we definitely can’t say the same thing about the HUI high. In late 2012, gold miners topped almost 100 index points below the late-2011 top. That’s very similar to what’s happening here. Gold moved to the previous high but failed to break above it (the late-2013 high that is), but gold miners were not even close to the analogous price level (it’s about 80 index points higher). The history rhymes and this similarity has very bearish implications for the following weeks and months and the current strength appears to be just a correction within a bigger downtrend.

Summary

Summing up, the bullish implications from the short-term breakout in gold stocks are overwhelmed by the bearish implications of what we see in other mining stock proxies: GDX and SIL – proxy for silver stocks, the short-term developments that we saw in gold and silver, and by the long-term outlook for gold, silver, gold stocks, and the USD Index.

Gold and silver confirmed their breakdowns below their rising short-term support lines – also in terms of the weekly close, which is yet another bearish factor currently in play for the precious metals market. The above happened in addition to and after we saw multiple long-term signs pointing to lower prices in the following months, i.a. the clear huge-volume-confirmed bearish shooting star candlestick in gold, huge volume topping signs from both: gold and silver, the triangle-vertex-based reversals, and epic volume from silver stocks. The next big move in the precious metals sector is most likely going to be down, not up.

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and 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 a subject to change without notice. Opinions and analyses were 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 believed 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 Clearly Reverses at Consolidation’s Upper Border

At the same time, when the gold to silver ratio was breaking out in a clear way, many journalists ignored that and emphasized the importance of the resistance at hand. Either way, the focus was not on what was really going on, but on trying to make the reality fit the bullish case for gold. After all, “gold people” have to be bullish on gold all the time, right? Wrong – those, who want their clients to succeed need to stay focused on what is likely to happen based on objective, cold logic, and facts, instead of chasing the emotions of the day. And what do the facts tell us?

We have a twofold purpose in highlighting the pitfalls of permabullish emotionality. The first one is to show you how acting on emotions in investing backfires – gold rallied temporarily above $1,440 and in today’s pre-market trading, declined to almost $1,400. And it doesn’t seem that the decline is over. The second one is that we want to emphasize that there is almost nobody else in the gold analysis business that saw that the real resistance and the upper border of the long-term consolidation pattern in gold is at the mid-2013 highs. Many others cheered as gold moved above the previous – less important – highs, and they wrote about a major breakout in gold. These were breakouts, but not the key ones and nothing to call home about given that the highest of the relatively close highs remained unbroken. Please remember the above as gold moves to lower prices. Please also remember that we are writing right now that we will see gold below $1,200 well before we’ll see it above $1,500.

Let’s see what happened on the precious metals market, starting with something… beautiful.

Marvelous Fractal Lessons

Do you remember how gold topped in 2011? Do you recall its immediate and sharp decline followed by a correction that hasn’t made it to the previous high, and then – after a few months of pausing – making a final attempt to move higher but failing to break above the most recent high? And then, in April 2013, it truly plunged, which was immediately followed by a sharp correction and then the slide continued to new lows?

If you’ve been interested in the precious metals market at that time, you definitely remember – it was impossible to miss these moves.

The beautiful thing here is that… The above chart doesn’t feature it. These are not weekly or monthly candlesticks. These are 30-minute candlesticks and what you see above is what gold did in the last two days or so. You probably thought that it was gold’s performance from 2013, because the price pattern is almost identical. Please take a look below for details.