Gold’s Foremost Lesson from 2013

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

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

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

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

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

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

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

Let’s see what happened in 2013.

Now, let’s see what happened recently.

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

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

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

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

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

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

It’s telling us… Hmm, no.

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

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

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

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

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

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

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

* * * * *

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

Don’t Be Misled by Gold’s Recent Upswing

Patience Advised

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

Let’s take a closer look at what happened.

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

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

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

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

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

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

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

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

Back and Forth

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

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

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

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

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

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

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

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

* * * * *

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

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

Powell Strikes Again

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

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

He added:

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

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

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

Please see below:

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

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

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

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

Please see below:

Source: Investing.com

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

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

Powell’s Freight Train to Ruin

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

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

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

He added:

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

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

Please see below:

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

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

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

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

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

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

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

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

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

What Inflation?

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

Please see below:

Source: Investing.com

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

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

Please see below:

Source: Whirlpool

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

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

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

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

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

Please see below:

Source: Chipotle Mexican Grill/AlphaStreet

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

The Bottom Line

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

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

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

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

* * * * *

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

If Gold Continues Its Uptrend, Junior Miners Will Benefit

Bullish Indications

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

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

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

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

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

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

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

Gold Hasn’t Stopped Yet

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

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

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

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

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

* * * * *

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

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

Gold Is Getting Ready to Follow in Junior Miners’ Footsteps

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

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

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

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

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

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

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

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

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

Forex markets and gold

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

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

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

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

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

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

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

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

* * * * *

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

 

Gold Stocks Are Heavily Oversold – A Rebound Is Likely Soon

2008, Is That You Again?

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

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

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

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

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

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

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

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

Not Every Fall Must Be Bearish

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

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

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

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

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

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

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

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

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

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

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

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

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

Now, it has declined by about 31.5%.

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

I previously wrote the following:

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

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

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

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

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

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

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

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

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

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

* * * * *

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

 

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

Let the S&P 500 Be a Clue

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

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

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

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

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

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

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

The Rise of the Dollar

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

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

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

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

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

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

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

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

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

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

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

* * * * *

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

 

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

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

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

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

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

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

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

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

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

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

Gold Technical Analysis

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

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

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

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

Gold Price Forecast

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

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

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

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

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

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

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

* * * * *

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

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

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

History Can Be Rhymed

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Yes!

Still Bearish

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

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

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

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

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

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

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

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

* * * * *

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

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

April and May Replay?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Juniors Are Weak. Period

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

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

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

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

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

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

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

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

The USDX Tendency

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

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

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

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

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

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

Impact on Precious Metals

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

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

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

* * * * *

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

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

Without Gold’s Help

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

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

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

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

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

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

Here We Go Again

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

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

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

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

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

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

You have been warned.

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

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

* * * * *

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

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

Work in Progress

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

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

Please see below:

Obraz zawierający stółOpis wygenerowany automatycznieSource: Investing.com

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

Obraz zawierający stółOpis wygenerowany automatycznie Source: Investing.com

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

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

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

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

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

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

Please see below:

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

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

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

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

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

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

Please see below:

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

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

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

Please see below:

Obraz zawierający tekstOpis wygenerowany automatycznieSource: Bloomberg

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

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

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

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

Please see below:

Obraz zawierający tekstOpis wygenerowany automatycznieSource: Reuters

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

Short Squeeze 2.0

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

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

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

Source: Goldman Sachs

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

Please see below:

Source: Goldman Sachs

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

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

Likewise, oversold conditions are also present.

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

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

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

Please see below:

Source: Bloomberg/Zero Hedge

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

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

Source: Bank of America

The Bottom Line

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

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

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

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

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

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

* * * * *

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

No Rosy Future Lies Ahead Gold Miners in the Stock World

Here Comes the Replay

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

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

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

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

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

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

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

The Bearish Outlook for Precious Metals

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* * * * *

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

 

After Powell’s Decision, the Outlook for Gold Remains Bearish

Another Squeeze, Don’t Panic

With the FOMC increasing interest rates by 75 basis points on Jun. 15, inflation has officially forced the Fed’s hand. Moreover, with the latest rise expanding the count to six rate hikes in 2022 (25 basis point increments), the tally puts us on recession watch.

However, with the PMs (and most assets) rallying during Chairman Jerome Powell’s press conference, I warned earlier in the day that a short squeeze could materialize. For context, it wasn’t a prediction. I simply noted that extremely bearish positioning could lead to a reversion. I wrote:

With the recent carnage across the financial markets rattling the bulls, sentiment and positioning are extremely stretched. Therefore, while a ‘sell the rumor, buy the news’ event may unfold, it’s prudent to stay focused on the S&P 500 and the GDXJ ETF’s medium-term downtrends.

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

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

Source: Goldman Sachs

As such, while the PMs enjoyed daily relief rallies, hedge funds’ cumulative net flows on Jun. 10 and Jun. 13 were more than four standard deviations below the average. Therefore, we’ve seen several short squeezes before, and they haven’t impacted the PMs’ medium-term trajectories.

The FOMC Statement and the June SEP

As mentioned, the FOMC increased interest rates by 75 basis points on Jun. 15. The release read:

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1‑1/2 to 1-3/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May.”

More importantly, the FOMC released its June Summary of Economic Projections (SEP).

Please see below:

Obraz zawierający stółOpis wygenerowany automatycznieSource: U.S. Fed

To explain, the FOMC provides its economic forecasts every second meeting. If you analyze the blue box above, you can see that officials increased their median Personal Consumption Expenditures (PCE) index projection from 4.3% year-over-year (YoY) in March to 5.2% YoY in June. As a result, inflationary realities have proven forceful once again.

Furthermore, the red box at the bottom of the chart shows that officials’ median U.S. federal funds rate projection increased from 1.9% in March to 3.4% in May. Therefore, FOMC participants expect nearly 14 rate hikes in 2022. 

For context, I have been bullish on the U.S. economy for a while and expected a much more hawkish Fed policy than the consensus. However, it’s a near certainty the U.S. will enter a recession as these rate hikes unfold.

Also noteworthy, officials’ median real GDP projection was cut from 2.8% in March to 1.7% in June. Moreover, I’ve long warned the Fed has to hike rates to contain inflation, and patience will only worsen the situation.

Yet, here we are. FOMC officials increased their inflation estimate and lowered their growth estimate, which has the mix going in the wrong direction. In addition, waiting only exasperates the ominous divergence. As such, that’s why I warned on Jun. 7 that hiking interest rates is the lesser of two evils. I wrote:

The Fed finds itself in a catch-22. Curbing inflation should lead to a recession, as nearly all bouts of unanchored inflation have ended with an economic downturn over the last ~70 years. Likewise, waiting for inflation to subside on its own would result in even more suffering. 

To explain, I noted above that unanchored inflation in the 1970s/1980s pushed the U.S. into recession four times over ~12 years. As such, that’s roughly one recession every three years. Conversely, stable inflation often coincides with a recession roughly every eight to 10 years.

Moreover, the chart below highlights how all of the post-1970/1980 recessions coincided with rising inflation (except for COVID-19). Thus, with the current inflation rate much higher than any of those periods and more similar to the 1970/1980s, the Fed and the BoC should know that the smaller and less frequent recessions below are preferable to the larger and more frequent recessions above. As a result, the post-GFC crowd suffers from recency bias, and fails to understand these economic challenges.

The Balancing Act

While the fundamentals of the FOMC’s SEP and the potential for ~14 rate hikes are extremely hawkish, Powell was relatively dovish during his press conference. Moreover, this statement near the beginning helped light a fire under risk assets.

“Clearly today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Powell said. “From the perspective of today, either a 50-basis-point or a 75-basis-point increase seems most likely at our next meeting.”

Therefore, while another 50 or 75 basis point hike in July is profoundly hawkish, Powell puts to rest fears of panic-like 1% or more increases. As a result, it was enough to uplift sentiment.

In addition, Powell added:

“As mentioned, 75 basis points today and the next meeting could well be about a decision between 50 and 75; that would put us at the end of the July meeting in a more normal range and that’s a desirable place to be because you begin to have more optionality about the speed with which you proceed going forward.”

Thus, the statement also increases hope that the Fed could pause and reassess its outlook after the July meeting. Therefore, it assuages investors’ fears of a swift hiking cycle on autopilot.

However, after the sharp sell-offs across bonds and equities recently, it’s reasonable that Powell would attempt to calm the situation. While he helped to uplift daily sentiment, the realities of unanchored inflation and ~14 rate hikes will be much more important over the medium term.

For example, Powell said:

“The federal funds rate, even after this move, is at 1.6%. The committee is moving rates up expeditiously to more normal levels, and we came to the view that we’d like to do a little more front-end loading on that.”

He added:

“Committee participants widely would like to see policy at a modestly restrictive level at the end of this year” and “that is generally 3% to 3.5%.”

However, the most important quote of the press conference occurred when Powell was asked: does 3.8%-4% [federal funds rate] get the job done and break the back of inflation?

He responded:

“I think we’ll know when we get there. You would have positive real rates and inflation coming down. I think you would have positive real rates across the curve.”

Thus, Powell confirmed what I’ve been warning about for months: the Fed needs higher real yields to curb inflation. Moreover, while beneficiaries of lower real interest rates like Bitcoin, the ARK Innovation ETF, and the GDXJ ETF have suffered in 2022, I warned on Dec. 23, 2021 that the liquidity drain would take no prisoners. I wrote:

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

Finally, Powell also made my point about how further patience will only intensify inflation and exacerbate the stagflationary cocktail. For context, this was the second most important quote of the press conference. Powell said:

“The worst mistake we could make would be to fail. It’s not an option. We have to restore price stability. It’s the bedrock of the economy. If you don’t have price stability, the economy is really not going to work the way it’s supposed to. It won’t work for people. Their wages will be eaten up. So we want to get the job done.”

As a result, while Powell softened his overall tone to reduce the panic across the financial markets, the fundamentals of the day were clear:

  1. The FOMC increased its median rate hike projection to ~14 in 2022.
  2. Powell wants higher real interest rates.
  3. Letting inflation rage is “not an option.”
  4. The FOMC “widely” wants “a modestly restrictive” policy by the end of 2022.

Therefore, while I’ve stated this many times throughout 2021 and 2022, the PMs’ medium-term fundamental outlooks continue to worsen.

The Bottom Line

While Powell sounded relatively dovish, actions speak louder than words. Moreover, with six rate hikes on the books and another 50 to 75 basis point increase scheduled for July, that would take us to eight or nine 25 basis point rate hikes in 2022. In addition, with FOMC officials’ median estimate for the U.S. federal funds rate nearly doubling from 1.9% to 3.4%, the liquidity drain should occur even faster than expected a few months ago. As a result, the developments are profoundly bearish for the S&P 500 and the PMs.

Furthermore, while the USD Index and U.S. Treasury nominal and real yields declined on Jun. 15, we’ve seen this movie before. Investors often sell the news after strong rallies. Yet, all three keep climbing as the fundamental realities commence. Thus, this time should be no different.

In conclusion, the PMs rallied on Jun. 15, as Jay saved the day. However, their bearish medium-term fundamentals intensified. As such, while sentiment ruled the day, the optimism should evaporate in the coming weeks and months.

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

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

* * * * *

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

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

 

GDXJ: While Focusing on Details, Don’t Miss the Great Downturn!

Junior Miners Technical Analysis

Let’s take a look at what happened in junior mining stocks.

In last Friday’s (June 3) Gold & Silver Trading Alert, I commented on Thursday’s rally in the following way:

The price of the GDXJ ETF – a proxy for junior miners – moved sharply higher yesterday, and this got many people excited. High volume confirms that. It’s natural for most investors and traders to view rallies as bullish, but let’s keep in mind that most traders tend to lose money… It’s not that simple. After all, the best shorting opportunities are at the tops, which – by definition – can only be formed after a rally. 

The particularly interesting thing about high volume readings in the GDXJ ETF is that they quite often mark local tops. Remember the late-April – early-May consolidation? It ended when GDXJ finally rallied on high volume. That was the perfect shorting opportunity, not a moment to panic and exit the short position.

The GDXJ-based RSI indicator is also quite informative right now. It moved well above 50, but it’s not at 70 yet. Why would that be important? Because that’s when many of the previous corrections ended.

When one digs deeper, things get even more interesting. You see, when we consider corrections that started after the RSI was very oversold (after forming a double bottom below 30), it turns out that in all those cases, the tops formed with the RSI between 50 and 70. I marked those situations with blue ellipses on the above chart.

So, while it’s easy to “follow the action,” it’s usually the case that remaining calm and analytical leads to bigger profits in the end. 

Also, let’s use yesterday’s move as something useful. If this single-day move higher made you really uncomfortable and almost made you run for the hills, it might be a sign that the size of the position that you have is too big. It’s your capital and you can do with it what you wish, but if the above were the case, it might serve as food for thought.

The big trend (as well as the reasons for it) remains down, which means that the enormous profit potential remains intact.

Last Friday’s and this week’s declines confirm the above. The high-volume rally marked the top – those who got excited at that time likely bought exactly or very close to the top, instead of shorting at that time. Fortunately, you were prepared.

After taking profits off the table and closing short positions on May 12, we immediately entered long positions (it turned out that it happened right at the bottom), and we then took profits from that long position on May 26. Next, we returned to short positions. These positions are already profitable, but it seems that they will be much more profitable soon. Why?

Why – GDXJ ETF Price Forecast

Most importantly, because history rhymes, we’re likely to see a repeat of 2012-2013 or the 2008 decline. So far, the current slide is in tune with the 2008 performance.

However, let’s not dig into the long-term details yet. While we’re close to the short-term chart, let’s focus on what it features. For your convenience, here it is once again.

The recent April-May decline doesn’t have to be repeated to the letter, but we could see something similar nonetheless. After all, that decline is the most recent analogy to what we’re about to see in the GDXJ (a massive decline).

Based on the above, I marked two cases from the precious decline (the initial decline and the entire decline) and I copied them to the current situation, assuming that the recent top is indeed the starting point of the next bid decline (which seems likely in my view).

It turns out that junior miners might need to decline to or slightly below the May lows before we see even a moderate corrective upswing.

Will I want to trade this correction? Probably not. If we see a correction from below $35, it might be small – only a bit over $36, so it might be way too risky to trade this quick rebound. The downside (the bigger orange rectangle) is much bigger than the above, and it would be a much bigger waste to miss this move in order to try to catch a relatively small move.

Besides, there’s also a chance that we won’t see any meaningful correction, just like what happened in 2020.

Back in March 2020, after the corrective upswing, mining stocks fell like a stone in water. While the current price moves are less volatile, they are still somewhat similar (note the marked areas on the above chart).

Moreover, please note that the GDXJ failed to break back above the red and green resistance lines, which by itself is also a bearish indication.

The next short-term upswing is quite likely here, and (while I can’t make any promises with regard to performance), in my opinion, the profits on our short positions are likely to increase tremendously before we exit them.

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

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

* * * * *

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

 

Fakeout Instead of Breakout: Is the Gold Miners’ Crash Coming?

The precious metals market declined yesterday, and while the move is still small, it’s nice to see that our short positions in juniors are already profitable.

GDXJ Price Recap

Something quite interesting happened in their price movement at the beginning of yesterday’s session, and that’s what I’d like to start with today.

Juniors tried to rally above their recent highs and resistance levels, but failed. They formed an hourly reversal candlestick and then declined in the following part of the session.

What was “supposed” to be a breakout turned out to be a fakeout, and lower values followed. This is bearish, and it tells us that taking profits from our previous long positions in the junior miners several days ago was likely a great idea.

To clarify, the above is bearish only for the very short term. It doesn’t tell us much about the bigger picture. So let’s zoom out. Significantly.

There are quite a few analogies between now and 2012, and I described them in the huge last Friday’s analysis. However, there are also signs that what we’re seeing is actually similar to what happened in 2008. I also described some of them on Friday, but the one that I would like to emphasize today is already visible on the chart above.

Namely, gold stocks declined practically just as rapidly as they did in 2008. Here’s the really interesting part: they corrected after moving close to their 200-week moving average – just like what we saw in 2008. This red line triggered corrections in both cases. They were not huge, but notable from the short-term point of view.

HUI Index

You know how much the HUI Index declined before this correction (between the July 2008 top and the August 2008 bottom)?

About 33%.

The decline in the HUI Index that we saw between April and May took it about 27% lower.

Not identical, but very similar.

And the recent correction? The HUI moved up around 8% higher in terms of closing prices and about 11% higher. Back in 2008, the analogous rally took the HUI about 12.5% higher.

Once again: not identical, but similar. Things are just a little less extreme this year.

Junior Gold Miners Forecast and Technical Analysis

If this similarity is to continue, then we can expect another mover lower to materialize shortly. Well, that’s what we already knew based on other indications, but what the above analogy also tells us is that the HUI Index could decline significantly once again. Back in 2008, it declined by about 26%, which was a little less than before the consolidation.

Please keep in mind that history tends to rhyme, not repeat itself to the letter. So, the above doesn’t imply that the HUI now has to decline by exactly 26%. It does tell us, however, that mining stocks can be expected to decline by as much (approximately!) as they did before correcting, and that’s an important clue.

If the GDXJ declines by as much as it did before correcting, it will move slightly below $28. The nearby support is provided by the previous low (dashed line, slightly below $27). While it’s unclear if it moves below $27 or not – before correcting – it’s very likely that we’ll see a huge decline below $30, and that the profits on our short positions are likely to increase significantly.

Is the very short-term top in? That appears likely, though it’s not 100% certain. The GDXJ appears to have topped in the lower part of my target area, and the same goes for the RSI (which might have topped close to 50, just like it did in early 2020).

Gold and US Dollar Clues

The gold market doesn’t provide any major clues right now, except for the fact that we saw a substantial increase in volume while gold declined. That’s bearish, but not very strongly so. It doesn’t have to be, though, as based on multiple other factors, gold is likely to decline in the medium term and analogies to previous huge declines are only one of them. Rising real interest rates and the USD Index are the two key bearish drivers of gold prices.

Speaking of the USD Index, it seems that it might have just bottomed right in my target area.

The combination of two rising support lines (and the 50-day moving average) was likely to stop the pullback, and we might have seen exactly that.

Please keep in mind that the RSI below 50 also indicated good buying opportunities for the USD Index during the recent run-up.

Most importantly, though, let’s keep in mind that gold stopped reacting to USDX’s weakness recently as it didn’t move to new highs while the former moved to new short-term lows.

The above is a powerful bearish combination of factors for the precious metals market.

Bottom Line

All in all, it seems that we’re about to see another sizable decline in the prices of junior mining stocks, and while I can’t promise any performance, it seems likely to me that profits on our short positions will increase substantially.

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

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

* * * * *

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

Mining Stocks Analysis – Does Anyone Really Believe 0.5% Rate Hikes Will Curb Inflation?

Key Fundamentals

While investors continue their countdown until the Fed pivots and resumes QE, in some alternative reality, it’s perceived as bullish for risk assets. Sure, the short-term sugar high of more free money should uplift sentiment. However, I’ve noted on numerous occasions that the long-term consequences would be dire.

Thus, while investors await a superhero that’s unlikely to arrive, the ramifications of unanchored inflation should prove troublesome over the medium term. To explain, the FOMC released the minutes from its May 3-4 monetary policy meeting on May 25. The report revealed:

“Participants judged that it was important to move expeditiously to a more neutral monetary policy stance. They also noted that a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook.”

In addition:

“Participants observed that inflation continued to run well above the Committee’s longer-run goal and that inflation pressures were evident in a broad array of goods and services. Various participants remarked on the hardship caused by elevated inflation and heightened inflation uncertainty – including eroding American families’ real incomes and wealth and making it more difficult for businesses to make production and investment plans. They also pointed out that high inflation could impede the achievement of maximum employment on a sustained basis.”

As a result, 50 basis point rate hikes are now the consensus for “the next couple of meetings.”

Please see below:

A picture containing textDescription automatically generated
Source: U.S. Fed

Likewise, Fed Vice Chair Lael Brainard conveyed a similar message on May 25. She said:

TextDescription automatically generatedSource: Reuters

However, it’s important to remember that Fed officials’ primary objective is to calm inflation. They don’t want to crash the stock, bond, or commodities markets; the latter outcomes are simply collateral damage of what must be done to curb the pricing pressures. To explain, I wrote on Dec. 23:

The Fed’s only hawkish goal is to calm inflation. When inflation was running hot and most Americans bought into the “transitory” narrative, Fed officials exuded confidence. However, when consumer confidence sunk to a 10-year low and inflation became political, the Fed changed its tune. As a result, Powell wants to reduce inflation while tightening as little as possible (3% to 4% inflation may be considered acceptable in 2022).

Thus, the Fed’s hawkish crusade has always been dependent on the path of inflation. Therefore, if inflation fades into the night, officials can turn dovish, and the bull market can resume on Wall Street. To that point, the FOMC minutes also stated:

“Most participants indicated that their business contacts had continued to report that substantial increases in wages and input prices were being passed through into higher prices to their customers. A few participants added that some of their contacts were starting to report that higher prices were hurting sales.

“A number of participants observed that recent monthly data might suggest that overall price pressures may no longer be worsening. These participants also emphasized that price pressures remained elevated and that it was too early to be confident that inflation had peaked.”

As a result, while it’s “too early to be confident,” Fed officials, like investors, continue to search for signs of positive momentum. Moreover, Atlanta Fed President Raphael Bostic said on May 23 that he supports 50 basis point rate hikes in June and July.

“I’m at 50 basis points as long as the economy proceeds as I think it’s going to,” said Bostic. “If inflation starts moving in a different direction than it is right now, I’d have to be open to us moving more aggressively….

“It’s hard to know exactly how far or how hard we are going to push. But I think getting us somewhere in the 2% to 2.5% range by year’s end would be a good place for us to get to.”

However, he also opined that a wait-and-see approach could prove prudent in the months that follow.

Please see below:

Graphical user interface, textDescription automatically generatedSource: Bloomberg

Thus, Fed officials are open to pausing their rate hike cycle. For context, Bostic’s expectation of a U.S. federal funds rate “somewhere in the 2% to 2.5% range by year’s end” still implies eight to 10 rate hikes in 2022. Therefore, it’s not dovish.

However, while investors will applaud Fed officials’ willingness to “observe and adapt,” nothing has changed. It was always about inflation, and it’s still about inflation.

For example, Fed officials were split about one rate hike when they made their projections in September. Moreover, in the months before that, they expected to taper their asset purchases in late 2022 and raise interest rates in late 2023. As a result, their read on inflation shouldn’t instill much confidence.

For context, I wrote on Nov. 4:

With Fed Chairman Jerome Powell still searching for his inflationary shooting star, the FOMC chief isn’t ready to label inflation as problematic. “I don’t think that we’re behind the curve,” he said. “I actually believe that policy is well-positioned to address the range of plausible outcomes, and that’s what we need to do.”

The reality is: while Powell has taken the path of least resistance to help calm inflation (the taper), his inability to understand the realities on the ground leaves plenty of room for hawkish shifts in the coming months (interest rate hikes).

Therefore, while the potential for three-straight 50 basis point rate hikes is profoundly hawkish, the Fed still underestimates the challenges that lie ahead. For example, S&P Global released its U.S. Composite PMI on May 24. I noted on May 25:

TextDescription automatically generatedSource: S&P Global

And:

TextDescription automatically generated Source: S&P Global

This data was collected from May 12-23. Therefore, inflation is still running away from the Fed, and three rate hikes (25 basis point increments) have done little to alleviate the pricing pressures. 

Second, the Richmond Fed released its Fifth District Survey of Manufacturing Activity on May 24. The headline index declined from 14 in April to −9 in May, which is bearish for Fed policy. However, the report also revealed that “The average growth rate of prices paid increased notably in May. Firms also reported higher average growth in prices received in May.”

On top of that: “The wage index also remained elevated, indicating that a large share of firms continue to report increasing wages.”

Please see below:

Chart, histogramDescription automatically generatedSource: Richmond Fed

Likewise, the Richmond Fed also released its Fifth District Survey of Service Sector Activity on May 24. The headline index decreased from 24 in April to 10 in May. However, while the wage index declined, the price indexes remained materially elevated.

Please see below:

ChartDescription automatically generated Source: Richmond Fed

In addition, the U.S. Census Bureau released its residential home sales report on May 24. Moreover, while sales of new single‐family houses declined by 16.6% month-over-month (MoM) in April, the average and median selling prices hit new all-time highs.

Please see below:

ChartDescription automatically generated

Also, despite three rate hikes by the Fed, are these the kind of headlines that you see when inflation has calmed down?

Graphical user interface, textDescription automatically generatedSource: The Wall Street Journal Twitter

Finally, Bain semiconductor analyst Peter Hanbury told CNBC on May 24 that the world’s largest foundries — including Taiwan Semiconductor, Samsung and Intel — are considering further price hikes. He said:

“Foundries have already increased prices 10%-20% in the past year. We expect a further round of price increases this year, but smaller (i.e. 5%-7%).”

He added: “The chemicals used in [chip] manufacturing have increased 10%-20%. Similarly, the labor required to build new semiconductor facilities has also seen shortages and increased wage rates.”

As a result, PCs, cars, toys, consumer electronics, appliances, and many other products could sell at higher price points in the near future.

Please see below:

A screenshot of a computerDescription automatically generated with medium confidenceSource: CNBC

The bottom line? While 50 basis point rate hikes are likely done deals in June and July, a realization will only put the U.S. federal funds rate at 1.83%. With annualized inflation at 8%+, calming the price pressures with such little action is completely unrealistic. In fact, it’s never happened.

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

Chart, histogramDescription automatically generated

Bottom Line

In conclusion, the PMs declined on May 25, and the GDXJ ETF gave back some of its recent gains. However, the short-term uptrend remains intact, and the rally should continue in the coming days. Conversely, with investors still underestimating the severity of the Fed’s inflation problem, more reality checks should emerge over the next few months. As a result, the PMs’ recent optimism should reverse sharply over the medium term (perhaps quite soon).

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

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

* * * * *

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

 

After Recent Highs, What’s Next for the Junior Miners?

Another day, another higher close in the junior miners. And another day where profits on our long positions in the latter increased. There is a sign that the rally in the precious metals sector is close to being over.

Gold vs US Dollar Correlation and Technical Analysis

That sign is the situation in the USD Index, and the shape of the gold-USD link.

Chart, histogramDescription automatically generated

Starting with the gold-USD link, please note that while gold ended yesterday’s session higher, it was only ~$6 higher. Given that the USD Index declined by over one index point, it would be “normal” for gold to rally much more.

That’s a sign that gold is getting “exhausted”, which is another way of saying that the buying power for this particular rally appears to be drying up. Of course, one swallow doesn’t make a summer, but given the size of USD’s decline, it’s quite notable.

USD’s decline took it below its recent lows, and since it’s slightly down also in today’s pre-market trading, it seems that it can now decline further in the very near term. “Further” here shouldn’t be viewed as “by a lot”. In fact, there is a combination of rising support lines just above where the USD Index is trading right now.

The dashed lines: blue and red one are likely to stop this correction. Of course, it’s not 100% certain, but the fundamental situation continues to favor higher USD values (rising real interest rates), so significant changes don’t appear likely. The possibility is there, especially if the geopolitical situation changes, but it’s simply not likely.

Besides, the RSI just moved below 50, and while this doesn’t mean anything based on “classic” interpretation of this indicator’s signals, I would like to emphasize that practically each time when we saw something like that in the past year or so, it meant that the USD Index was about to bottom.

So, on one hand, gold no longer “wants” to react to the USD’s weakness, and on the other hand, the short-term bottom in the USD Index appears to be at hand.

ChartDescription automatically generated

Gold itself still didn’t correct as much as it did after previous cases when the RSI touched the 30 level. I marked the smallest rallies that followed this signal in the recent past with blue, dashed lines.

If history is about to rhyme, then gold’s rally might be nearing its end, but it’s not yet there.

Junior Mining Stocks

And what about the junior mining stocks?

ChartDescription automatically generated

Well, their rebound simply continues. The GDXJ ETF ended yesterday’s session 0.92% higher (GDX was up by 0.59%, silver was up by 0.23% and gold by 0.31%). They are up by almost $4 (about 10%) from May 12, when we switched from short to long positions in the USDX – more than any of the above-mentioned markets.

Gold and Miners Price Forecast

The USD’s decline appears to be close to its end, and the same goes for the end of the short-term rally in gold, which means that the same fate likely awaits the junior miners – their rally too is about to end, in my view.

The target area that I placed on the above chart remains up-to-date. Yesterday’s weakness in gold relative to the USD Index tells me that it’s more likely that the rally will end in the lower part of the target area – probably close to its early-May low.

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

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

* * * * *

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

 

Here is Why I’m Still Bullish on Gold Miners

Precious metals declined yesterday, and so did the general stock market. Is the rally already over?

When I wrote about this rally on May 12, which took place at the same time when I took profits from the short positions and entered the long ones, I mentioned that I planned to hold these long positions for a week or two. Since that was exactly a week ago, the question is: is the top already in?

In short, it probably isn’t. As always, it’s useful to check what happened in the past in similar situations to verify whether what we see is normal or some kind of an outlier that cannot be explained by something that has already happened.

Let’s start with a quote from yesterday’s analysis:

Of course, there will be some back-and-forth movement on an intraday basis, but it doesn’t change anything. Junior miners are likely to rally this week nonetheless. And perhaps not longer than that, as the next triangle-vertex-based reversal is just around the corner – on Friday/Monday.

The previous few days were the “forth” and yesterday was the “back” movement – so far, my comments remain up-to-date. However, comparing the market action with what I wrote previously isn’t what I meant by analogies to past situations. I meant this:

ChartDescription automatically generated

The areas marked with green rectangles are the starting moments of the previous short-term rallies. Some were bigger than others, and yet they all had one thing in common. They all included a corrective downswing after the initial post-bottom rally.

Consequently, what we saw yesterday couldn’t be more normal during a short-term rally. This means that yesterday’s decline is not bearish at all and the profits from our long positions are likely to increase in the following days.

Besides, the general stock market declined by over 4%, while the GDXJ (normally moving more than stocks) ETF – a proxy for junior mining stocks – declined by only about 2%.

ChartDescription automatically generated

If the general stock market continues to decline, junior miners could get a bearish push even if gold prices don’t decline.

However, let’s keep in mind the fact that miners tend to bottom before stocks do – in fact, we saw that in early 2020. This means that even if the S&P 500 moves to new yearly lows shortly and then bounces back up, the downside for miners could be limited, and the stocks’ rebound could trigger a profound immediate-term rally.

If stocks decline, then they have quite strong support at about 3815 – at their 38.2% Fibonacci retracement level.

Let’s keep in mind that junior miners have triangle-vertex-based reversal over the weekend, so they might form some kind of reversal on Friday or Monday.

Ideally, miners would be after a quick rally that is accompanied by huge volume on Friday. This would serve as a perfect confirmation that the top is in or at hand.

However, we can’t tell the market what it should do – we can only respond to what it does and position ourselves accordingly. Consequently, if stocks take miners lower, it could be the case that Friday or Monday will be the time when they bottom. This seems less likely to me than the previous (short-term bullish) scenario, but I’m prepared for it as well. In this case, we’ll simply… wait. Unless we see some major bearish indications, we will wait for the rally to end, perhaps sometime next week.

Again, a nearby top appears more likely than another bottom, in particular in light of what I wrote about the common post-bottom patterns in the GDXJ.

Having said that, let’s take a look at the markets from a fundamental point of view.

The Chorus Continues

While investors still struggle with the notion that the Fed can’t bail them out amid soaring inflation, the S&P 500 and the NASDAQ Composite suffered another reality check on May 18. Moreover, with Fed officials continuing to spread their hawkish gospel, I warned on Apr. 6 that demand destruction does not support higher asset prices. I wrote:

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

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

To that point, while the S&P 500 and the NASDAQ Composite plunged on May 18, Fed officials didn’t soften their tones. For example, Philadelphia Fed President Patrick Harker said:

“Going forward, if there are no significant changes in the data in the coming weeks, I expect two additional 50 basis point rate hikes in June and July. After that, I anticipate a sequence of increases in the funds rate at a measured pace until we are confident that inflation is moving toward the Committee’s inflation target.”

For context, “measured” rate hikes imply quarter-point increments thereafter.

Please see below:

Graphical user interface, text, application, chat or text messageDescription automatically generatedSource: Reuters

Likewise, Chicago Fed President Charles Evans delivered a similar message on May 17. He said that by December, “we will have completed any 50 [basis point rate hikes] and have put in place at least a few 25 [basis point rate hikes].”

Moreover, “given the current strength in aggregate demand, strong demand for workers, and the supply-side improvements that I expect to be coming,” he added that “I believe a modestly restrictive stance will still be consistent with a growing economy.”

Therefore, while their recent rhetoric had Fed officials “expeditiously” marching toward neutral, now the prospect of a “restrictive stance” has entered the equation. For context, a neutral rate neither stimulates nor suffocates the U.S. economy. However, when the federal funds rate rises above neutral (restrictive), the goal is to materially slow economic activity and consumer spending. As such, the medium-term liquidity drain is profoundly bearish for the S&P 500 and the PMs.

Please see below:

Source: Reuters

Making three of a kind, Minneapolis Fed President Neel Kashkari (a reformed dove) said on May 17 that “My colleagues and I are going to do what we need to do to bring the economy back into balance…”

“What a lot of economists are scratching their heads and wondering about is: if we really have to bring demand down to get inflation in check, is that going to put the economy into recession? And we don’t know.”

For context, Fed officials initially thought inflation was “transitory,” so don’t hold your breath waiting for that “soft landing.” However, while Kashkari is ~16 months too late to the inflation party, he acknowledged the reality on May 17:

Text, chat or text messageDescription automatically generatedSource: Bloomberg

As a result, while the S&P 500 and the NASDAQ Composite sell-off in their search for medium-term support, Fed officials haven’t flinched in their hawkish crusade. As such, I’ve long warned that Americans’ living standards take precedence over market multiples.

To that point, the U.K. headline Consumer Price Index (CPI) hit 9% year-over-year (YoY) on May 18. For the sake of objectivity, the results underperformed economists’ consensus estimates (the middle column below).

Source: Investing.com

However, while investors may take solace in the miss, they should focus on the fact that the U.K. output Producer Price Index (PPI) materially outperformed expectations and often leads the headline CPI. As a result, the inflation story is much more troublesome than it seems on the surface.

Please see below:

Source: Investing.com

In addition, British Finance Minister Rishi Sunak warned of a cost of living crisis on May 18, saying that “as the situation evolves our response will evolve” and “we stand ready to do more.”

Please see below:

TextDescription automatically generatedSource: Reuters

Even more revealing, I’ve noted on numerous occasions that Canada is the best comparison to the U.S. due to its geographical proximity and its reliance on the U.S. to purchase Canadian exports. Therefore, with Canadian inflation outperforming across the board on May 18, the data paints an ominous portrait of the challenges confronting North American central banks.

Please see below:

Graphical user interface, text, applicationDescription automatically generated Source: Investing.com

To that point, the official report stated:

“Canadians paid 9.7% more in April for food purchased from stores compared with April 2021. This increase, which exceeded 5% for the fifth month in a row, was the largest increase since September 1981. For comparison, from 2010 to 2020, there were five months when prices for food purchased from stores increased at a rate of 5% or higher….

“Basics, such as fresh fruit (+10.0%), fresh vegetables (+8.2%) and meat (+10.1%), were all more expensive in April compared with a year earlier. Prices for starchy foods such as bread (+12.2%), pasta (+19.6%), rice (+7.4%) and cereal products (+13.9%) also increased. Additionally, a cup of coffee (+13.7%) cost more in April 2022 than in April 2021.”

Moreover, “in April, shelter costs rose 7.4% year over year, the fastest pace since June 1983, following a 6.8% increase in March.” Therefore, the data is nearly synonymous with the U.S., and I’ve been warning for months that rent inflation would prove much stickier than investors expected.

Please see below:

Source: Statistics Canada

Finally, the investors awaiting a dovish pivot from the Fed assume that growth will overpower inflation. In a nutshell: the U.S. economy will sink into a deep recession in the next couple of months (some believe that we are already in one), and the Fed will resume QE. Moreover, they assume that the inflationary backdrop has left consumers destitute and that we’re a quarter away from famine.

However, I couldn’t disagree more. With Home Depot – which primarily sells discretionary items – noting that consumers are showing no signs of slowing down, I warned on May 18 that investors don’t realize that the Fed’s war with inflation would be one of attrition.

Please see below:

ApplicationDescription automatically generated with medium confidenceSource: Home Depot/The Motley Fool

For context, the National Retail Federation (NRF) listed Home Depot as the fourth-largest retailer in the U.S. in its 2021 report. As a result, the company’s performance is a reliable indicator of U.S. consumer spending.

Graphical user interface, text, applicationDescription automatically generatedSource: NRF

To that point, The Confidence Board released its U.S. CEO Confidence survey on May 18. The report revealed:

CEO confidence “declined for the fourth consecutive quarter in Q2 2022. The measure now stands at 42, down from 57 in Q1. The measure has fallen into negative territory and is at levels not seen since the onset of the pandemic. (A reading below 50 points reflects more negative than positive responses.)”

Please see below:

Chart, line chartDescription automatically generated

However, the devil is in the details and the details are what matter to the Fed. For example:

“More than half (54%) of CEOs said they were effectively managing rising input costs by passing along costs to customers, while 13% said they had no major issues with input costs.”

ChartDescription automatically generatedSource: The Confidence Board

Second:

“More than two-thirds of CEOs said they are increasing wages across the board in response to labor market conditions and managing rising labor costs through different means.”

ChartDescription automatically generated with medium confidence Source: The Confidence Board

More importantly, though:

Graphical user interface, text, application, emailDescription automatically generated Source: The Confidence Board

Therefore, while consolidated CEO confidence has crashed to “levels not seen since the onset of the pandemic,” nearly two-thirds of CEOs plan to increase their workforce and more than nine out of 10 plan to increase wages. As a result, would major U.S. corporations be adding employees and paying them more if demand has fallen off a cliff? Of course not. Moreover, when considering the 15-point drop in consolidated CEO confidence, the three-point decline in employment expectations is largely immaterial.

Bottom Line

While investors keep using the post-GFC script as their roadmap for when the Fed turns dovish, they don’t realize that 1970s/1980s-like inflation is a completely different animal. Thus, what I wrote on May 18 should prove prescient in the coming months:

While Powell keeps warning investors of what’s to come, a decade of dovish pivots has a generation of investors believing that the central bank is all talk and no action. However, with inflation at levels unseen in 40+ years, Powell is not out of ammunition, and the Fed followers should suffer profound disappointment as the drama unfolds.

In conclusion, the PMs declined on May 18, as risk-off sentiment returned to the financial markets. However, since fits and starts are always expected along the way, the GDXJ ETF should have more upside in the coming days, and profits from our long position should increase. The medium-term outlook for the mining stocks remains bearish, though.

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

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

* * * * *

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

 

Here’s Why I’m Bullish on Gold Miners

Miners Last Week

On Thursday, I wrote that I was going to go long on junior mining stocks, and in the following hours, the GDXJ moved even a bit lower, providing you with a great opportunity to exit short positions and enter long ones in a comfortable manner. Hopefully, you did that, because the GDXJ rallied by almost 4% on Friday and ended the week above $37. The popular leveraged ETF, JNUG, was up by over 7% in a single day.

If you’re long on miners and you reaped those profits – congratulations! If not, let me re-emphasize what I wrote in Friday’s extensive flagship Alert: it seems to me that the short-term rally has only begun, and that quick profits are likely just around the corner.

Looking at gold’s pre-market decline, one might get second thoughts about the above, but please note that we are long on mining stocks, not gold, and there is a good reason why I chose mining stocks as a proxy and not gold or silver. The reason is that miners tend to show strength relative to gold before the bottom and then immediately thereafter.

Consequently, even if gold didn’t bottom last week and we’re seeing a bottom more or less right now, it doesn’t necessarily mean that miners will test their lows too.

Gold Price Action This Week

Let’s check what’s gold been doing so far this week.

Gold is down to new lows in today’s pre-market trading, and it’s well below my initial target area for it. However, another important support level is just around the corner.

I don’t mean just the psychologically important (being round) $1,800 level. That too, but it’s crucial to note that gold just moved to levels from which the entire war-tension-based rally started. If it wasn’t for those tensions, gold would likely have plunged profoundly in February and perhaps it would be already after or getting close to its final low. However, since the war has indeed started, gold peaked (when the tensions and uncertainty peaked), and it’s been moving lower since that time – despite what most analysts told you.

Gold and Uncertainty

Here’s what I wrote on February 28, 2022, in the Gold & Silver Trading Alert entitled “Since There is a War, Gold Will Rise, Right? Wrong.”:

Let’s keep in mind that for gold to decline, the war doesn’t have to end, it doesn’t have to be won by either side. The only thing that matters with regard to it, is how big the uncertainty and concern is. And the peak uncertainty/concern might be today, as everything is new, and the situation is dramatically changing the geopolitical environment in Europe.

For comparison, remember Covid-19 cases, deaths in early 2020? That was just a tiny fraction of what we saw later. However, it was new and unknown. People were particularly scared then, and the markets moved particularly significantly then – not based on additional millions of cases and thousands of deaths next year.

Investing and trading are difficult. If it was easy, most people would be making money – and they’re not. Right now, it’s most difficult to ignore the urge to “run for cover” if you physically don’t have to. The markets move on rumor and sell the fact. This repeats over and over again in many (all?) markets, and we have direct analogies to similar situations in gold itself. And junior miners are likely to decline the most, also based on the massive declines that are likely to take place (in fact, it already started) in the stock markets.

That wasn’t the peak uncertainty, but the latter peaked about a week later, and the war is still taking place months later, so it seems that one could say that the above proved to be correct.

Since junior miners just moved to new 2022 lows, it was also profitable not to chase the “emotional stampede”, but rather focus on the analogies to the previous situations from the past. Based on how the situation has developed in the markets so far, it seems that the clearest analogy is to how the gold market performed in 2001, based on the U.S.-Afghanistan war. I provided the chart in my Feb. 28, 2022, analysis, but here it is again:

Obraz zawierający tekst, wewnątrzOpis wygenerowany automatycznie

The decline had been big and sharp, but please note when it ended. Gold formed an initial, and then final, short-term bottom, very close to the price levels at which the rally started before the outbreak of the war.

Gold Today

Fast-forward to the current situation – these are the levels that gold is approaching in today’s pre-market trading.

The January 2022 low is $1,781.30 and the February 2022 low (which is also the yearly low) is $1,778.80.

Today’s pre-market low is $1,787.44 (at least so far). That’s less than $10 away from the above-mentioned strong support levels.

All this means is that gold and silver prices might have just bottomed or that they could bottom shortly.

Miners vs Gold

Let’s not forget what miners tend to do before and right after bottoms – they tend to show strength relative to gold. Let’s check what the GDXJ ETF is doing in today’s London trading.

It corrected somewhat, but unlike gold, the GDXJ didn’t move to new lows today. In other words, junior miners are showing strength, just as they are supposed to around the bottoms.

There are three more things on the above chart that I would like to discuss.

  1. The first is that a daily pause right after the turnaround is common for the GDXJ, and I marked several other occasions where we saw something similar. This includes what we saw after the sharp early-2020 correction.
  2. The second thing is that it’s clear that the GDXJ just (on Friday) invalidated the small breakdown below its previous (2021 and 2022) lows. This is a huge bullish development (for the short term only!). Invalidations of breakdowns immediately become bullish signals, without the need to wait for confirmation, and that’s what we just saw.
  3. The third indication is the triangle-vertex-based reversal, which will take place in about a week. It points to some kind of reversal taking place on May 22. That’s Sunday, so based on the above, we might expect a turnaround on Friday or next Monday.

Trading Strategy and Technical Analysis

This serves as an indication that we might want to prepare ourselves to close the current long position and go back on the short side of the trade before the end of the week – perhaps on Friday. Geopolitically, a lot can happen over the weekend, so I’d prefer to be positioned along with the medium-term trend beforehand.

The invalidation described as the “second thing” is also something that we saw from the U.S. perspective, so it’s definitely important.

The thing that I’d like to add is that the RSI just moved back above 30 after being below it, which is a classic buy signal. That’s what marked the end of the 2020 decline, and something very similar to what marked the end of the initial March decline (RSI just touched 30 at that time, but it was enough).

Please note that the triangle-vertex-based reversal point is practically the same from the U.S. point of view, so it adds credibility to the scenario in which junior miners top close to the end of this week.

This fits the target area that I provided on Friday on the above 4-hour-candlestick GDXJ chart.

The target would also fit the sharpness of the recent decline. After all, corrections tend to be similarly volatile as the price moves that are being corrected. Of course, let’s keep in mind that the current long position is for trading capital only, not for long-term investments, as I don’t think that the medium-term downtrend in gold, silver, and mining stocks is completely over yet.

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

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

* * * * *

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

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