Gold Begins to Wobble. Is It a Sign of a Greater Fall?

Junior Mining Stocks Technical Analysis

On the technical front, we saw that the junior mining stocks moved higher in the first part of the session, but then declined and ended the day practically unchanged.

Why did junior miners rally initially? Perhaps for technical reasons. They were moving higher in their immediate-term trend, and thus, it might have been necessary for them to reach a resistance level before they could return to their downtrend.

Junior miners just found the resistance in the form of the declining line based on the previous March highs. After a tiny attempt to break above this line, the GDXJ declined and the breakout was invalidated, suggesting that the rally is over.

Now, the above-mentioned resistance line appears to be the upper border of the triangle pattern, which might concern you because triangles are usually a “continuation pattern”. In other words, the move that preceded the triangle is usually the type of move that follows it. The preceding move higher was up, so the following move could be to the upside as well.

However, for this to happen, junior miners would first need to confirm the breakout above the line, and we saw the opposite taking place yesterday – the breakout above the line was invalidated.

If – instead – we see a decline below the lower border of the triangle, the pattern would likely be followed by a decline. Please note that I wrote “usually” and now “always” with regard to the bullish implications of triangles.

Gold Technical Analysis and Forecast

If we look beyond the above chart, the bearish case is more justified than the bullish one.

I don’t mean just the extremely bearish situation in gold’s long-term chart, where it’s clear that gold is repeating its 2011-2013 performance, with the recent top being analogous to what we saw in 2012.

If it wasn’t for the Ukraine-war-tension-based rally, gold would have likely topped close to its current levels, which would be a perfect analogy to where it topped in 2012 – close to its preceding medium-term highs.

The fact that the RSI indicator moved lower recently after being close to 70 indicates that the top is already behind us.

If history is about to rhyme (and that’s very probable in my view), gold is likely to decline in a back-and-forth manner before it truly slides without looking back. Basically, that’s what we’ve been seeing recently. The recent consolidation is not a bullish development, but something in perfect tune with the extremely bearish pattern from 2012.

I don’t mean “just” the above, because we see similar analogies in silver and gold stocks (the HUI Index), and we get other indications (of more short-term nature) from the USD Index and the general stock market.

S&P 500 Technical Picture

The technical picture of the S&P 500 index suggests that the final top and the initial corrective upswing are over.

The general stock market closed the week below its February highs, which means that the small breakout above them was invalidated. This is a very bearish indication for the following weeks. Many more investors are likely to become aware of the new interest-rate-hike-driven medium-term bear market once the S&P 500 breaks to new 2022 lows. That’s when the decline is likely to accelerate, quite likely also in silver and mining stocks that are usually most vulnerable to stock market moves.

USD Index and Precious Metals Price Forecast

Moreover, let’s keep in mind that the USD Index is likely to soar once again soon, triggering declines in the precious metals market.

In my previous analyses, I commented on the USD Index in the following way:

If we focus on the USD Index alone, we’ll see that yesterday’s decline was absolutely inconsequential with regard to changing the outlook for the USDX. It simply continues to consolidate after a breakout above the mid-2020 highs. Breakout + consolidation = increasing chances of rallies’ continuation. A big wave up in the USD Index is likely just around the corner, and the precious metal sector is likely to decline when it materializes.

As the war-based premiums in gold and the USD appear to be waning, a high-interest-rate-driven rally in the USD is likely to trigger declines in gold. The correlation between these two assets has started to decline. When that happened during the last two cases (marked with orange), gold plummeted profoundly shortly thereafter.

The USD Index rallied recently, once again clearly verifying the breakout above its mid-2020 high. This means that the USD Index is now likely ready to rally once again. Naturally, this has bearish implications for the precious metals sector.

All in all, technicals favor a decline in the precious metals sector sooner rather than later.

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 USDX Rocket Is Ready to Take Off: Gold Doesn’t Fit Aboard

Gold and Miners Technical Analysis

The back-and-forth movement in both gold and miners continues. However, as GDXJ keeps trading below its rising support line, the breakout below it becomes confirmed, and the movements that we saw at the same time in gold and the USD Index suggest that the former is ready to slide once the latter rallies. Let’s take a closer look, starting with the GDXJ.

Yesterday’s move in the ETF was rather insignificant, and that’s precisely what makes it… significant.

What I mean is that insignificant moves after a breakdown are a perfect way for the market to take a breather before declining further. In other words, the previous breakdown makes yesterday’s irrelevant price action relevant and bearish.

Consequently, my yesterday’s comments on the above chart remain up-to-date:

Yesterday’s breakdown below the rising support line was not invalidated.

We saw a move higher on volume that was not strong, which suggests that yesterday’s session was not a true reversal. Low volume suggests that it was a correction, and the fact that junior miners have just broken below their rising support line means that it makes perfect sense for them to correct now.

Consequently, yesterday’s action wasn’t really bullish for junior miners when we take the context into account.

US Dollar Index and Gold Correlation

Speaking of context, let’s not forget about yesterday’s action in the USD Index.

The USD Index declined significantly yesterday, which means that gold, silver, and mining stocks “should have” rallied. After all, based on the USD’s decline, their prices (quoted in USD terms) became lower for non-USD buyers.

So, the fact that silver and gold were practically flat yesterday is actually bearish for them, because it means they underperformed. Gold miners moved higher, but given that the USD Index declined visibly and the general stock market rallied, it would be natural for miners to rally more than they did. Taking all this into account, miners were not really strong yesterday.

If we focus on the USD Index alone, we’ll see that yesterday’s decline was absolutely inconsequential with regard to changing the outlook for the USDX. It simply continues to consolidate after a breakout above the mid-2020 highs. Breakout + consolidation = increasing chances of rallies’ continuation. A big wave up in the USD Index is likely just around the corner, and the precious metal sector is likely to decline when it materializes.

As the war-based premiums in gold and the USD appear to be waning, a high-interest-rate-driven rally in the USD is likely to trigger declines in gold. The correlation between these two assets has started to decline. When that happened during the last two cases (marked with orange), gold plummeted profoundly shortly thereafter.

What happened after we posted the above?

The USD Index had declined, and gold had rallied (yesterday), and then (today) the USD Index moved back up by just a little while gold declined strongly.

Gold and Precious Metals Price Forecast

Gold is once again in a situation where it magnifies the USD’s bearish indications while largely ignoring the USD’s bullish indications.

This is a perfectly bearish sign for the short term, because it means that if the USD Index moves back and forth, then gold will most likely continue its downtrend, declining when the USD is up, and pausing when it’s down.

However, the USD Index is not likely to continue to move back and forth for long – quite the opposite. The USD Index has just verified its breakout above the mid-2020 high for the third time (without moving below it; the strong support held!), which means that it’s now very likely that it will simply continue its uptrend.

Based on how gold is now reacting to USDX’s movement, the uptrend in the USD Index would be likely to trigger significant declines in gold. This would be likely to translate into lower silver and mining stock prices.

All in all, technicals favor a decline in the precious metals sector sooner rather than later.

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.

 

Fed’s Actions Will Affect Gold. Are There Any Positives?

The question one of my subscribers asked me was about the rise in mining stocks and gold and how it was connected to what was happening in bond yields. Precisely, while short-term and medium-term yields moved higher, very long-term yields (the 30-year yields) dropped, implying that the Fed will need to lower the rates again, indicating a stagflationary environment in the future.

First of all, I agree that stagflation is likely in the cards, and I think that gold will perform similarly to how it did during the previous prolonged stagflation – in the 1970s. In other words, I think that gold will move much higher in the long run.

However, the market might have moved ahead of itself by rallying yesterday. After all, the Fed will still want to keep inflation under control (reminder: it has become very political!), and it will want commodity prices to slide in response to the foregoing. This means that the Fed will still likely make gold, silver, and mining stocks move lower in the near term.

In particular, silver and mining stocks are likely to decline along with commodities and stocks, just like what happened in 2008.

Speaking of commodities, let’s take a look at what’s happening in copper.

Copper invalidated another attempt to move above its 2011 high. This is a very strong technical sign that copper (one of the most popular commodities) is heading lower in the medium term.

Yes, it might be difficult to visualize this kind of move given the recent powerful upswing, but please note that it’s in perfect tune with the previous patterns.

The interest rates are going up, just like they did before the 2008 slide. What did copper do before the 2008 slide? It failed to break above the previous (2006) high, and it was the failure of the second attempt to break higher that triggered the powerful decline. What happened then? Gold declined, but silver and mining stocks truly plunged. The GDXJ was not trading at the time, so we’ll have to use a different proxy to see what this part of the mining stock sector did.

The Toronto Stock Exchange Venture Index includes multiple junior mining stocks. It also includes other companies, but juniors are a large part of it, and they truly plunged in 2008.

In fact, they plunged in a major way after breaking below their medium-term support lines and after an initial corrective upswing. Guess what – this index is after a major medium-term breakdown and a short-term corrective upswing. It’s likely ready to fall – and to fall hard.

So, what’s likely to happen? We’re about to see a huge slide, even if we don’t see it within the next few days.

In fact, the outlook for the next few days is rather unclear, as different groups of investors can interpret yesterday’s developments differently. However, once the dust settles, the precious metals sector is likely to go down significantly.

Gold is up in today’s pre-market trading, but please note that back in 2020, after the initial post-top slide, gold corrected even more significantly, and it wasn’t really bullish.

This time gold doesn’t have to rally to about $2,000 before declining once again, as this time the rally was based on war, and when we consider previous war-based rallies (U.S. invasion of Afghanistan, U.S. invasion of Iraq, Russia’s invasion of Crimea), we know that when the fear-and-uncertainty-based top was in, then the decline proceeded without bigger corrections.

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 History Rhymes, Gold and Silver Are Back on Slippery Slope

Last week’s powerful, huge-volume reversal in gold was likely to be followed by declines. It was – but that’s just the beginning.

Yesterday’s $24 decline might seem significant on a day-to-day basis, but compared to last week’s enormous reversal, it’s really tiny.

The modest extent of yesterday’s decline is by no means bullish – my emphasis on the small size of the decline so far should be viewed as an indication that much more is likely on the horizon. Besides, gold was down by about $20 in today’s pre-market trading.

As I wrote yesterday, gold’s breakout above $2,000 was officially invalidated, and given the weekly reversal, it seems that the war-uncertainty-based rally is over.

The decisive move below 70 in the RSI indicator after it was trading above 70 clearly confirms that the top is already behind us. Just like it was in 2020 and 2021 when similar things happened, history appears to have rhymed.

On Friday, I wrote the following:

Gold’s move of $0.40 (yes, forty cents) above $2,000 is not important as the breakout above this level was just invalidated the previous day. Technically, this is another attempt to break above this level, which is likely to be invalidated based on what we see in today’s pre-market trading.

The fact that I would like to emphasize today is that this kind of small rebound after the initial slide is common and perfectly normal for gold. We saw exactly the same thing right after gold’s 2020 top and after its 2021 top, and also two more times in 2021 (as marked on the above chart).

This means that yesterday’s upswing is not particularly bullish. It’s a normal post-top reaction. Lower gold values are to be expected.

Silver declined yesterday, and it closed the day below its late-2021 high.

In other words, the breakout above this level was invalidated. This is a strong bearish confirmation from the white metal.

The white metal just invalidated the move above its 61.8% Fibonacci retracement.

That’s bearish on its own, but let’s keep in mind that it happened right after silver outperformed gold.

Last Tuesday, the GDXJ ETF was up by less than 1%, gold was up by 2.37%, and silver was up by 4.57%. Silver’s outperformance and miners’ underperformance is what we tend to see right at the tops. That’s exactly what it was – a top. Silver declined profoundly, and the attempt to break above its 61.8% Fibonacci retracement level will soon be just a distant (in terms of price) memory.

On a medium-term basis, silver was simply weak relative to gold, but we saw short-term outperformance. In short, that was and continues to be bearish.

As far as silver’s big picture is concerned, please note that it also provides us with a confirmation of the analogy between 2012 and now.

At the turn of the year in 2011/2012, there was a cyclical turning point in silver, and we saw a sizable decline in silver shortly thereafter. The same happened in 2021, after silver’s cyclical turning point.

Back in 2012, silver declined more or less to its previous lows and then rallied back up, but it didn’t reach its previous top. It more or less rallied to its 50-week moving average and then by about the same amount before topping.

Recently, we saw exactly the same thing. After the initial decline, silver bottomed close to its previous lows, and most recently it rallied to its 50-week moving average and then by about the same amount before topping – below the previous high.

Thus, the situation is just like what it was during the 2012 top in all three key components of the precious metals sector: gold, silver, and mining stocks.

We have a situation in the general stock market that points to an even quicker slide than what we saw in 2012-2013. If stocks slide sharply and significantly just like in 2008, then the same fate may await the precious metals sector – just like in 2008. In this case, silver and mining stocks (in particular, junior mining stocks) would be likely to fall in a spectacular manner.

All the above was confirmed by silver’s invalidation of its breakout above the late-2021 high. Not only has the medium-term outlook been bearish, but now the short-term outlook for silver is bearish too.

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 Tries to Hold Above $2000 – Hard Landing Ahead?

Gold is attempting to break above the $2,000 milestone, and miners are trying to break above their declining resistance line. Will they manage to do so, and if so, how long will the rally last?

Yesterday, gold didn’t manage to close above the $2,000 level and it’s making another attempt to rally above it in today’s pre-market trading. However, will it be successful?

Given the RSI above 70 and the strength of the current resistance, it’s doubtful.

In fact, nothing has changed with regard to this likelihood since yesterday, so what I wrote about it in the previous Gold & Silver Trading Alert remains up-to-date:

Gold touched $2,000 in today’s pre-market trading, which is barely above its 2021 high and below its 2020 high. Crude oil is way above both analogous levels.

In other words, gold underperforms crude oil to a significant extent, just like in 2003.

Interestingly, back in 2003, gold topped when crude oil rallied about 40% from its short-term lows (the late-2002 low).

What happened next in 2003? Gold declined, and the moment when crude oil started to visibly outperform gold was also the beginning of a big decline in gold stocks.

That makes perfect sense on the fundamental level too. Gold miners’ share prices depend on their profits (just like it’s the case with any other company). Crude oil at higher levels means higher costs for the miners (the machinery has to be fueled, the equipment has to be transported, etc.).

When costs (crude oil could be viewed as a proxy for them) are rising faster than revenues (gold could be viewed as a proxy for them), miners’ profits appear to be in danger; and investors don’t like this kind of danger, so they sell shares. Of course, there are many more factors that need to be taken into account, but I just wanted to emphasize one way in which the above-mentioned technical phenomenon is justified.

Back in 2003, gold stocks wiped out their entire war-concern-based rally, and the biggest part of the decline took just a bit more than a month. Let’s remember that back then, gold stocks were in a very strong medium- and long-term uptrend. Right now, mining stocks remain in a medium-term downtrend, so their decline could be bigger – they could give away their war-concern-based gains and then decline much more.

Mining stocks are not declining profoundly yet, but let’s keep in mind that history rhymes – it doesn’t repeat to the letter. As I emphasized previously today, back in 2003 and 2002, the tensions were building for a longer time, and it was relatively clear in advance that the U.S. attack was going to happen. This time, Russia claimed that it wouldn’t attack until the very last minute before the invasion. Consequently, the “we have to act now” is still likely to be present, and the dust hasn’t settled yet – everything appears to be unclear, and thus the markets are not returning to their previous trends. Yet.

However, as history shows, that is likely to happen. Either immediately, or shortly, as crude oil is already outperforming gold.

The above chart features the GDXJ ETF. As you can see, the junior miners moved to their very strong resistance provided by the declining resistance line. This resistance is further strengthened by the 38.2% Fibonacci retracement, and the previous (late-2021) high. This means that it’s particularly strong, and any breakout here would likely be invalidated shortly.

Given the clear sell signal from the RSI indicator, a turnaround here is even more likely. I marked the previous such signals to emphasize their efficiency. When the RSI was above 70, a top was in 6 out of 7 of the recent cases, and the remaining case was shortly before the final top, anyway.

This resistance seems to be analogous to the $2,000 level in gold.

By the way, please note that gold tried to break above $2,000 several times:

  • twice in August 2020;
  • twice in September 2020 (once moving above it, once moving just near this level);
  • once in November 2020 (moving near this level);
  • once in January 2021 (moving near this level);
  • once in February 2022 (moving near this level).

These attempts failed in each of the 7 cases mentioned above. This is the eight attempt. Will this very strong resistance break this time?

Given how much crude oil has already soared, and how both markets used to react to war tensions in the case of oil-producing countries, it seems that the days of the rally are numbered.

Moving back to the GDXJ ETF, please note that while gold is moving close to its all-time highs, the junior miners are not doing anything like that. In fact, they barely moved slightly above their late-2021 high. They are not even close to their 2021 high, let alone their 2020 high. Instead, junior mining stocks are just a bit above their early-2020 high, from which their prices were more than cut in half in less than a month.

In other words, junior miners strongly underperform gold, which is a bearish sign. When gold finally declines – and it’s likely to, as geopolitical events tend to have only a temporary effect on prices, even if they’re substantial – junior miners will probably slide much more than gold.

One of the reasons is the likely decline in the general stock market.

I recently received a question about the impact the general stock market has on mining stocks, as the latter moved higher despite stocks’ decline in recent weeks. So, let’s take a look at a chart that will feature junior mining stocks, the GLD ETF, and the S&P 500 Index.

Before the Ukraine crisis, the link between junior miners and the stock market was clear. Now, it’s not as clear, but it’s still present. Juniors only moved to their late-2021 highs, while gold is over $100 above those highs. Juniors underperform significantly, in tune with the stock market’s weakness.

The gold price is still the primary driver of mining stock prices – including junior mining stocks. After all, that’s what’s either being sold by the company (that produces gold) or in the properties that the company owns and explores (junior miners). As gold prices exploded in the last couple of weeks, junior miners practically had to follow. However, this doesn’t mean that the stock market’s influence is not present nor that it’s going to be unimportant going forward.

Conversely, the weak performance of the general stock market likely contributed to junior miners’ weakness relative to gold – the former didn’t rally as much as the latter. Since the weakness in the general stock market is likely to continue, and gold’s rally is likely to be reversed (again, what happened in the case of other military conflicts is in tune with history, not against it), junior miners are likely to decline much more profoundly than gold.

Speaking of the general stock market, it just closed at the lowest level since mid-2021.

The key thing about the above chart is that what we’ve seen this year is the biggest decline since 2020, and the size of the recent slide is comparable to what we saw as the initial wave down in 2020 – along with the subsequent correction. If these moves are analogous, the recent rebound was perfectly normal – there was one in early 2020 too. This also means that a much bigger decline is likely in the cards in the coming weeks, and that it’s already underway.

This would be likely to have a very negative impact on the precious metals market, in particular on junior mining stocks (initially) and silver (a bit later).

All in all, it seems that due to the technical resistance in gold and mining stocks, the sizable – but likely temporary (like other geopolitical-event-based-ones) – rally is likely to be reversed shortly. Then, as the situation in the general stock market deteriorates, junior miners would be likely to plunge in a spectacular manner.

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: What Should We Expect Given the Ongoing Conflict?

Don’t stop reading this mining stock analysis until you get to the part about junior mining stocks’ analogy. Something might interest you there.

While the unfortunate conflict confronting Russia and Ukraine has intensified in recent days, gold, silver, and mining stocks have benefited from the crisis. However, since history shows that geopolitical-tension-based rallies often reverse, Feb. 24 was likely a small indication of what should unfold over the next few months.

For example, gold’s sharp rally turned into a sharp intraday reversal on Feb. 24. While the S&P 500, the NASDAQ Composite, the S&P 500, and gold managed to end the session in the green, the GDX ETF declined by 1.93%.

Furthermore, after the gold and silver senior miners rallied above their medium-term declining resistance line (the downward sloping black line in the middle of the chart below), the intraday reversal invalidated the breakout and it occurred on significant volume.

At the same time, senior mining stocks invalidated their attempt to break above their 38.2% Fibonacci retracement. That’s yet another bearish sign.

This means that the GDX ETF’s medium-term downtrend remains intact, and that the short-term concern-based rally may have just ended.

To that point, the HUI Index provides clues from a longer-term perspective. When we analyze the weekly chart, the current short-term move higher is in tune with the previous patterns, but history is not repeating itself to the letter.

The three previous cases that I marked with green were not identical, but quite similar in terms as they were all some sort of a broad head-and-shoulders pattern.

Now, this pattern can have more than two “shoulders”. It’s not that common, but it happens. It seems that what we saw recently (I mean the late-2021 – Feb. 2022 rally) could be viewed as either a part of a big post-pattern consolidation, or another right shoulder of the pattern.

Based on how broad the pattern is and self-similarity present in gold, it seems that the analogy to what happened in 2012 is most important right now.

Looking at the moving averages, we see that the 50-week moving average (blue) and 200-week moving average (red) performed quite specifically in late 2012, and we see the same thing this year.

The distance between 50- and 200-week moving averages currently narrows, while the former declines. Back in 2012, the top formed when the HUI rallied above its 50-week moving average, which just happened once again.

Still, if the general stock market slides, and that appears likely for the following weeks and months, then we might have a decline that’s actually similar to what happened in 2008. Back then, gold stocks declined profoundly, and they have done so very quickly.

The dashed lines that start from the recent prices are copy-paste versions of the previous declines that started from the final medium-term tops. If the decline is as sharp and as big as what we saw in 2008, gold stocks would be likely to decline sharply, slightly below their 2016 low. If the decline is more moderate, then they could decline “only” to 120 – 140 or so. Either way, the implications are very, very, very bearish for the following weeks.

Turning to the junior miners, the GDXJ ETF tried to break out above a lower declining resistance line (the downward-sloping blue line drawn from the mid-2021 and late-2021 highs below). However, the attempt was rejected and culminated with a sharp intraday reversal. Moreover, the junior miners’ relative weakness was on full display, as despite the green lights flashing for the general stock market, gold, and silver, the GDXJ ETF ended the Feb. 24 session down by 2.28%.

In addition, please note that the bearish about-face occurred on strong volume, and the move mirrored the sharp spike that preceded the March 2020 plunge.

Please note that while junior miners invalidated their breakout above the declining resistance line, similarly to GDX, it was not the analogous line. The line that’s analogous to the one on the previous GDX chart is the blue, dashed line. GDXJ was not even close to it.

In other words, junior miners are underperforming seniors, just like what I’ve been expecting to see for months. The trend in the ratio between them is clear too.

Once again (just like in 2020), junior miners are likely to decline more than seniors, providing a greater shorting opportunity for truly epic profits.

Let’s get back to the previous chart for a moment, and let’s expand on the “just like in 2020” analogy.

Buckle-up, Alice, because the ride down the similarity rabbit hole is going to be a wild one.

Here it goes:

  • The early-2020 top in the GDXJ formed after a sharp short-term rally.
  • The early-2020 top in the GDXJ formed when GDXJ opened much higher, declined on an intraday basis, and ended the day lower.
  • The early-2020 top in the GDXJ formed at $44.85, on significant volume.
  • When the GDXJ topped in early-2020, its 50-day moving average was at about $40, and the MACD indicator was at about 1.

Now, let’s consider what happened yesterday.

  • This week’s top in the GDXJ formed after a sharp short-term rally.
  • This week’s top in the GDXJ formed when GDXJ opened much higher, but declined on the intraday basis, and ended the day lower.
  • This week’s top in the GDXJ formed at $45.16 (just 0.7% higher than in early-2020), on significant volume.
  • When the GDXJ topped this week, its 50-day moving average was at about $40 ($40.50), the MACD indicator was at about 1 (0.747).

If you think that’s extremely similar, you’re right. However, I saved the best for last:

The early-2020 top formed on February 24.

Yesterday WAS February 24.

Does this guarantee a slide like in 2020 in the junior miners? Of course not, there are no guarantees in any market, but does that make it even more likely? Yes, it does. Is it an epic opportunity for those who position themselves correctly? Again, I can’t make any promises or guarantees, but that’s what seems likely to me.

All in all, a crash below $20 is not out of the question. In the meantime, though, I expect the GDXJ ETF to challenge the $32 to $34 range. However, this is my expectation for a short-term bottom only. While the GDXJ ETF may record a corrective upswing at this level, the downtrend should continue thereafter, and the junior miners should fall further over the medium term.

In conclusion, the unfortunate situation unfolding in Ukraine is important, from a humanitarian perspective, and I hope that a peaceful resolution materializes. Also, it is my responsibility to analyze the situation and report it to you how it’s likely to impact the markets and what it implies for one’s trading positions. What’s justified from the risk-to-reward point of view and what’s not. While gold, silver, and mining stocks benefited from geopolitical tensions, history shows that such gains are short-lived. As a result, I still expect the trio to hit lower lows over the medium term, and I think that the decline will not be subtle.

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.

 

Miners for Breakfast, Gold for Dessert: Bearish Fundamentals Will Hurt

While gold remains uplifted due to the Russia-Ukraine drama, the GDXJ ETF declined for the second-straight day on Feb. 22. Moreover, I warned on numerous occasions that the junior miners are more correlated with the general stock market than their precious metals peers. As a result, when the S&P 500 slides, the GDXJ ETF often follows suit.

To that point, with shades of 2018 unfolding beneath the surface, the Russia-Ukraine headlines have covered up the implications of the current correction. However, the similarities should gain more traction in the coming weeks. For context, I wrote on Feb. 22:

When the Fed’s rate hike cycle roiled the NASDAQ 100 in 2017-2018, the GDXJ ETF suffered too. Thus, while the Russia-Ukraine drama has provided a distraction, the fundamentals that impacted both asset classes back then are present now.

Please see below:

To explain, the green line above tracks the GDXJ ETF in 2018, while the black line above tracks the NASDAQ 100. If you analyze the performance, you can see that the Fed’s rate hike cycle initially rattled the former and the latter rolled over soon after. However, the negativity persisted until Fed Chairman Jerome Powell performed a dovish pivot and both assets rallied. As a result, with the Fed Chair unlikely to perform a dovish pivot this time around, the junior miners have some catching up to do.

Furthermore, while the S&P 500 also reacts to the geopolitical risks, the Fed’s looming rate hike cycle is a much bigger story. With the U.S. equity benchmark also following its price path from 2018, a drawdown to new 2022 lows should help sink the GDXJ ETF.

Please see below:

Source: Morgan Stanley

To explain, the yellow line above tracks the S&P 500 from March 2018 until February 2019, while the blue line above tracks the index’s current movement. If you analyze the performance, it’s a near-splitting image.

Moreover, while Morgan Stanley Chief Equity Strategist Michael Wilson thinks a relief rally to ~4,600 is plausible, he told clients that “this correction looks incomplete.”Rarely have we witnessed such weak breadth and havoc under the surface when the S&P 500 is down less than 10%. In our experience, when such a divergence like this happens, it typically ends with the primary index catching down to the average stock,” he added.

As a result, while a short-term bounce off of oversold conditions may materialize, the S&P 500’s downtrend should resume with accelerated fervor. In the process, the GDXJ ETF should suffer materially as the medium-term drama unfolds.

To that point, the Fed released the minutes from its discount rate meetings on Jan. 18 and Jan. 26. While the committee left interest rates unchanged, the report revealed:

“Given ongoing inflation pressures and strong labor market conditions, a number of directors noted that it might soon become appropriate to begin a process of removing policy accommodation. The directors of three Reserve Banks favored increasing the primary credit rate to 0.50 percent, in response to elevated inflation or to help manage economic and financial stability risks over the longer term.”

For context, the hawkish pleas came from the Cleveland, St. Louis, and Kansas City Feds. Moreover, the last time Fed officials couldn’t reach a unanimous decision was October 2019. As a result, the lack of agreement highlights the monetary policy uncertainty that should help upend financial assets in the coming months.

As evidence, the report also revealed:

Obraz zawierający tekstOpis wygenerowany automatycznie Source: U.S. Fed

Thus, while I’ve highlighted on numerous occasions that a bullish U.S. economy is bearish for the PMs, the Russia-Ukraine drama has been a short-term distraction. However, with Fed officials highlighting that growth and inflation meet their thresholds for tightening monetary policy, higher real interest rates and a stronger USD Index will have much more influence over the medium term.

To that point, IHS Markit released its U.S. Composite PMI on Feb. 22. With the headline index increasing from 51.1 in January to 56.0 in February, an excerpt from the report read:

“February data highlighted a sharp and accelerated increase in new business among private sector companies that was the fastest in seven months. Firms mentioned that sales were boosted by the retreat of the pandemic, improved underlying demand, expanded client bases, aggressive marketing campaigns and new partnerships. Customers reportedly made additional purchases to avoid future price hikes. Quicker increases in sales (trades) were evident among both manufacturers and service providers.”

More importantly, though:

Obraz zawierający tekst, wewnątrz, zrzut ekranuOpis wygenerowany automatycznieSource: IHS Markit

In addition, since the Fed’s dual mandate includes inflation and employment, the report revealed:

Obraz zawierający tekstOpis wygenerowany automatycznie Source: IHS Markit

Likewise, Chris Williamson, Chief Business Economist at IHS Markit, added:

“With demand rebounding and firms seeing a relatively modest impact on order books from the Omicron wave, future output expectations improved to the highest for 15 months, and jobs growth accelerated to the highest since last May, adding to the upbeat picture.”

If that wasn’t enough, the Richmond Fed released its Fifth District Survey of Manufacturing Activity on Feb. 22. While the headline index wasn’t so optimistic, the report revealed that “the third component in the composite index, employment, increased to 20 from 4 in January” and that “firms continued to report increasing wages.”

For context, the dashed light blue line below tracks the month-over-month (MoM) change, while the dark blue line below tracks the three-month moving average. If you analyze the former’s material increase, it’s another data point supporting the Fed’s hawkish crusade.

Source: Richmond Fed

Finally, the Richmond Fed also released its Fifth District Survey of Service Sector Activity on Feb. 22. For context, the U.S. service sector suffers the brunt of COVID-19 waves. However, the recent decline in cases has increased consumers’ appetite for in-person activities. The report revealed:

“Fifth District service sector activity showed improvement in February, according to the most recent survey by the Federal Reserve Bank of Richmond. The revenues index increased from 4 in January to 11 in February. The demand index remained in expansionary territory at 23. Firms also reported increases in spending, as the index for capital expenditures, services expenditures, and equipment and software spending all increased.”

Furthermore, with the employment index increasing from 12 to 14, the wages index increasing from 41 to 46, and the average workweek index increasing from 9 to 10, the labor market strengthened in February. Likewise, the index that tracks businesses’ ability to find skilled workers increased from -21 to -19. As a result, inflation, employment and economic growth create the perfect cocktail for the Fed to materially tighten monetary policy in the coming months. 

Source: Richmond Fed

The bottom line? While the Russia-Ukraine saga may dominate the headlines for some time, the bearish fundamentals that hurt gold and silver in 2021 remain intact: the U.S. economy is on solid footing, and demand is still fueling inflation. Moreover, with information technology and communication services’ stocks – which account for roughly 39% of the S&P 500 – highly allergic to higher interest rates, the volatility should continue to weigh on the GDXJ ETF. As such, while gold may have extended its shelf life, mining stocks may not be so lucky.

In conclusion, the PMs were mixed on Feb. 22, as the news cycle continues to swing financial assets in either direction. However, while headlines may have a short-term impact, technicals and fundamentals often reign supreme over the medium term. As a result, lower lows should confront gold, silver, and mining stocks in the coming 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.

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.

 

Gold Withstands the Storm. Will Miners Drag It off the Raft?

While gold remains relatively firm despite stock market turbulence, rising real yields, and bearish technical indicators, even a confluence of headwinds hasn’t been able to knock the yellow metal off its lofty perch. However, mining stocks haven’t been so lucky. With my short position in the GDXJ ETF offering a great risk-reward proposition, the junior gold miners’ underperformance has played out exactly as I expected.

Moreover, with major spikes in volume preceding predictable sell-offs (follow the vertical dashed lines below), I’ve warned on several occasions that the GDX ETF is prone to tipping its hand – we saw this volume spike in January, which was the 2022 top (as of today). In addition, with mining investors’ power drying up by the day, the medium-term looks equally unkind.

Please see below:

On Wednesday, gold miners fell. Even though they declined by just $0.06, it was profound. The miners were following gold higher during the early part of Wednesday’s (Feb. 9) session, but they lost strength close to the middle thereof and were back down before the closing bell.

If the gold price reversed and then declined during the day, that would have been normal. However, gold stayed up.

This tells us that the buying power has either dried up or is drying up.

When everyone who wanted to get into the market is already in it, the price can do only one thing (regardless of bullish factors) – fall. Those who are already in can then sell. Monitoring the markets for this kind of cross-sector performance is one of the more important gold trading tips.

Look, I’m not saying that declines now are “guaranteed”. There are no guarantees in the markets. There might be buyers that haven’t considered mining stocks that would now enter the market, but history tells us that this is unlikely. Instead, declines are very likely to follow.

Yesterday’s big daily decline confirmed my above comments. Gold miners declined much more than gold did, and they did so at above-average volume. The latter indicates that “down” is the true direction in which the precious metals market is heading.

To that point, the HUI Index provides clues from a longer-term perspective. When we analyze the weekly chart, it highlights investors’ anxiety. For example, after hitting an intraweek high of roughly 260, the HUI Index ended the Feb. 10 session at roughly 250 – just 3.99 up from last Friday – that’s an intraweek reversal.

Furthermore, with the index still in a medium-term downtrend, shades of 2013 still profoundly bearish, and sharp declines often preceded by broad head and shoulders patterns (marked with green), there are several negatives confronting the HUI Index. As such, a sharp drawdown will likely materialize sooner rather than later.

Please see below:

Finally, the GDXJ ETF is the gift that keeps on giving. For example, with lower highs and lower lows being part of the junior miners’ roughly one-and-a-half-year journey, false breakouts have confused many investors. However, while I’ve been warning about the weakness for some time, more downside is likely on the horizon. To explain, I wrote on Feb. 10:

I emphasized before that juniors hadn’t moved above their 50-day moving average, and that they stayed below their rising blue resistance line. Consequently – I wrote – the downtrend in them remained clearly intact.

Yesterday’s reversal served as a perfect confirmation of the above. The previous breakdowns were verified in one of the most classic ways. The silver price has been quite strong recently, which is also something that we see close to the local tops.

The reversals in mining stocks, the situation in gold, outperformance of silver, AND the situation in the USD Index (the medium-term support held) together paint a very bearish picture for the precious metals market in the short and medium term.

All in all, if the weakness continues, I expect the GDXJ ETF to challenge the $32 to $34 range. However, please note that this is my expectation for a short-term bottom. While the GDXJ ETF may record a corrective upswing at this level, the downtrend should continue thereafter, and the junior miners should fall further over the medium term.

In conclusion, gold showcased its steady hand throughout the recent volatility. However, mining stocks have cracked under the pressure. With the latter’s underperformance often a bearish omen for the former, the yellow metal’s mettle may be tested over the medium term. As such, while the long-term outlooks for gold, silver, and mining stocks remain profoundly bullish, a final climax will likely unfold before their secular uptrends continue.

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.

 

Why Gold’s Latest Rally Is Nothing to Get Excited About

What a signal-rich week that was! At least if you’re interested in forecasting gold and predicting silver prices.

The USD Index rallied, but that was the least interesting of the important developments, as it had already reversed during the preceding week. So, the fact that the USD Index continued its medium-term uptrend last week is not that noteworthy.

It needs to be said, though, as that continues to be an important factor for the future of the precious metals market. To be clear – the implications for the PM sector are bearish.

What about gold, the key precious metal?

Gold is so far almost unchanged this year, despite the initial decline and the subsequent rally. Overall, gold is up by $3.20 so far in 2022, which is next to nothing.

Gold rallied on a supposedly dangerous situation regarding Ukraine, but it failed to rally above the combination of resistance lines and very little changed technically.

On a side note, I would like to remind you that, based on our own reliable source in Ukraine (one of our team members is located there), the risk of military conflict (in particular, a severe one) is low, and it seems that the market’s reaction was greatly exaggerated.

Anyway, moving back to technicals, let’s keep this $3.20-up-this-year statistic in mind while we take a look at what’s going on in silver and mining stocks.

Silver declined on Friday, but it’s still up by $0.97 so far in 2022. This means that on a short-term basis, silver greatly outperformed gold.

What’s up with mining stocks?

The GDX ETF – a proxy for generally senior mining stocks – is down this year by $0.38, which is 1.19%.

At the same time, the GDXJ ETF is down by $0.87, which is 2.07%.

In other words:

  1. While silver is outperforming gold on a short-term basis, gold mining stocks are underperforming it.
  2. Junior mining stocks (our short position) are declining more than senior miners, and in fact, they are declining the most out of the entire precious metals sector.

Silver’s outperformance, accompanied by gold miners weakness, is a powerful bearish combination in the case of the entire precious metals sector.

If the general stock market is going to slide, silver and mining stocks (in particular, junior mining stocks) are likely to decline in a rather extreme manner.

The thing is…

We just saw something in the general stock market that we haven’t seen since early 2020 – right before the massive decline that triggered the huge declines in the precious metals sector.

The RSI Index just moved below 30 for the first time since pre-slide moments. Just like what we saw back then, the S&P 500 is now declining on increasing volume.

Yes, RSI below 30 is generally considered oversold territory, but the direct analogies take precedence over the “usual” way in which things work in markets in general. In this case, the situation could get from oversold to extremely oversold. Let’s keep in mind that stocks declined very sharply in 2020.

One could say that times were different, but were they really? The key difference is that the monetary authorities are now already after the bullish money-printing cycle and are handling inflation by aiming to increase interest rates, while they had been preparing to cut them in 2020.

The situation regarding the pandemic is not that different either. Sure, back in 2020, it was all new, we had massive lockdowns and there was great uncertainty regarding… pretty much everything. Now, the situation is not entirely unexpected, but given the explosive nature of new COVID-19 cases (likely due to the Omicron variant), it’s still quite new and uncertain.

The uncertainty is not as great as it was back in 2020, but then again, now we’re facing monetary tightening, not dramatic dovish actions. Thus, I wouldn’t exclude a situation in which we really see a repeat of the early-2020 performance, where the declines are sharp and huge. The technicals in the precious metals market have been pointing to that outcome for months anyway, especially the long-term HUI Index chart that I’ve been discussing previously.

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.

US Federal Reserve – Playing With Fire Part II

Throughout the last few weeks of 2021 and early 2022, these comments and posturing by the US Fed have created some very big downside price moves in the US major indexes. As a result, the US markets’ volatility levels (VIX) have moved to a recent average between 17~21 – nearly 3x historical normal levels.

US Fed Likely To Move Very Slowly On Rates

One thing that I believe has become evident to many people is that we have moved past the COVID stimulus conversations of the past 24+ months. Inflation, rising prices, constricted supply-chains, and an excess of capital throughout many global markets appear to have shifted how the US Fed interprets future risks. The Fed is telegraphing these concerns to investors very clearly right now, which means traders/investors are shifting their focus away from high-flying Growth stocks.

Even though traders are attempting to shift capital away from certain risky sectors in the US and global markets, I still believe we have about 60 to 120+ days before the bigger market shift takes place.

The US Federal Reserve will likely start addressing inflationary concerns by reducing their balance sheet assets – not by aggressively raising interest rates. I feel the US Fed will navigate Q1:2022 and Q2:2022 by reducing balance sheet assets while allowing the global supply-chain issues to attempt to resolve themselves. By June/July 2022, or later, I believe the Fed may start to consider rate increases as a means to slow inflation.

Fed Comments Shift Investor Sentiment – Metals In Focus For Later 2022

This move away from Dovish/easy-money policies will push traders to consider more traditional hedge investments – like Gold and Silver. I’m sure you’ve read some comments over the past 24+ months about Gold being an extremely undervalued asset as the US Fed poured trillions of stimulus dollars into the economy? These comments were made concerning the fact that Gold rallied from $1450 in 2019 to almost $2100 in 2020 – over 12 months (over +43%). Could a big move in Gold/Silver happen again in 2022 or 2023?

My research suggests a Double Pennant/Flag formation in Gold suggests the $1675 support level becomes critical soon. It also indicates a Breakout/Breakdown move may start to happen before March or April 2022 – near the APEX of the current Pennant/Flag formation.

The key APEX range is currently between $1785 and $1830. This represents a very tight price range where Gold may attempt to consolidate as we move towards the March/April Apex. My research suggests a move to levels near $1740 to $1750 may happen just before the Apex Breakout/Breakdown initiates. So, watch for a bit of downside price volatility in Gold before the end of February 2022.

Graphical user interface, chart

Description automatically generated

Junior Gold Miners May Rally +45%, Or More, On A Gold Price Rally

The Junior Gold Miners (GDXJ) Weekly Chart shows a firm support level near $37.35 that should act as a floor for price. My research suggests the next 45+ days will see GDXJ prices stay below $44 to $45 – trading in a reasonably tight range before starting to rally higher near the end of February 2022.

I believe Metals and Miners are aligning for a late February 2022 or Q2:2022 rally. The reason is that I believe the positioning by the US Fed, and expectations related to later 2022 (a mid-term election year), may prompt quite a bit of concern for the US and global equities. This will likely push investors and traders into “old-school” hedge instruments – like Gold and Silver.

That means Junior Gold and Silver Miners maybe about 55+ days away from an explosive upside price trend.

Chart, histogram

Description automatically generated

SILJ May Rally +70% to +100%, Or More, On Fed Actions

Near the end of 2022, I published a research article highlighting the incredible opportunity in Silver – focusing on how the Gold/Silver ratio had recently reached another peak level and had started to decline: Fear May Drive Silver More Than 60% Higher In 2022. This move suggests the disparity between the price of Gold to the price of Silver shows Gold is appreciated (and holding greater value) than Silver over the past few years.

The COVID virus event, and the subsequent Fed/Government stimulus, shifted investors/traders focus away from precious metals and into the equities market speculative rally. Now that the US Fed is starting to warn of more aggressive rate increases and other actions, precious metals are suddenly much more important as a hedge against future risks.

This SILJ Weekly Chart highlights the incredible base level, near $12, that continues to offer traders a fantastic hedge against a sudden Fed move. Using a simple Fibonacci Price Extension, we can see a $20 target level (+61%) and a $25.64 target level (100%). If the $12 level holds as a base/support, SILJ may be one of the easiest and best hedges against a sudden Fed move right now.

Chart

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The US Federal Reserve is, in my opinion, playing with fire

The COVID Virus Event pushed global debt levels higher by more than $19.5 Trillion Dollars (Source: Bloomberg ). The rush to attempt to save the global economy has created a massive surge in global debt levels – pushing the global debt to GDP level to well above 356% (Source: Axios).

Why is this so important right now? Because the US Federal Reserve is talking about an attempt to move interest rates and Fed decision-making back to near-normal levels. In my opinion, this was the one fault of Alan Greenspan in 2006-07. The thought that we can raise rates to “near normal level” at any time when we have grown debt levels excessively throughout the world is failed thinking and ignorant, in my opinion.

The US Federal Reserve is trapped and almost backed into a corner. I believe the US Fed will find any rate increases above 1.00 before the end of 2023 will significantly disrupt the global speculative bubble. Any attempt to move rates to levels near or above 2.00 would represent a nearly +2000% rate increase in less than 12 to 24 months. If you want to see a shock to the global markets where global debt to GDP is closing in on 400%, try raising the FFR by more than 2000% over a short period of time. That is what I call “playing with FIRE.”.

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(Source: Axios)

2022 and 2023 will be filled with significant market trends and increased volatility. Right now, traders and investors need to understand the global markets are attempting to quickly transition away from a speculative/growth phase as the US Federal Reserve attempts to telegraph future rate increases. So it’s time to start thinking about how to prepare for unknowns and how to protect your capital more efficiently.

Growth sectors and US major indexes may continue to move higher for the next 30 to 60+ days, but my research suggests Q2:2022 may represent a “change in thinking” related to a late-2022 Fed shift. We are starting to see the markets move away from the speculative bubble-type trending we saw in 2020 and early 2021. Keep your eyes open and learn how to prepare for the big trends over the next 3+ years. The Fed is playing with fire right now. One wrong move and the markets could start a drastic price correction/reversion.

Finding The Right Trading Strategies

If you have struggled with finding opportunities over the past year or so and want to know which are the hottest sectors, or how to protect and grow your capital, then please take a minute to review my Total ETF Portfolio – Triple-Strategy Trading Plan to help you profit from these big market transitions.

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking the following link:   www.TheTechnicalTraders.com

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

Chris Vermeulen
Founder and Chief Market Strategist of The Technical Traders Ltd.

 

The USD Had a Slip-Up, but Gold Turned a Blind Eye to It

Now that was a big decline in the USD Index! What made gold yawn and why is it declining today? Because it doesn’t want to rally.

I’ve been writing this over and over again, and yet I’ll write it once more. Markets don’t move in a straight line up or down, and periodic corrections are natural. However, the way markets interact during those corrections tells us a lot about what’s likely to take place next, at least in the case of some markets.

The USD Index declined quite visibly yesterday and in today’s overnight trading.

The key questions are: so what, and if that was completely unexpected.

Starting with the latter, it wasn’t unexpected. It’s something in tune with gold’s long-term chart.

When the weekly RSI (based on the weekly price changes) for the USD Index hit 70, I wrote the following:

Also, please note that the recent medium-term rally has been calmer than any major upswing witnessed over the last 20 years, where the USD Index’s RSI has hit 70. I marked the recent rally in the RSI with an orange rectangle, and I did the same with the second-least and third-least volatile of the medium-term upswings.

The sharp rallies in 2008 and 2014 were of much larger magnitudes. And in those historical analogies, the USD Index continued its surge for some time without suffering any material corrections.

As a result, the short-term outlook is more of a coin flip.

Consequently, the current decline is not unexpected, it’s rather normal.

I marked additional situations on the above chart with orange rectangles – these were the recent cases when the RSI based on the USD Index moved from very low levels to or above 70. In all three previous cases, there was some corrective downswing after the initial part of the decline, but once it was over – and the RSI declined somewhat – the big rally returned and the USD Index moved to new highs.

I marked those declines in the RSI with blue rectangles, and I did the same thing for the current decline. As you can see, the size of the move lower is currently analogous to previous short-term corrections that were then followed by higher prices. This means that it’s quite likely over or very close to being over, and the medium-term rally can return any day now.

Moving back to USD’s short-term chart, we see that the USD Index just (in overnight trading, so the move is not even close to being confirmed) moved a little below USDX’s rising support line based on the previous June and October 2021 lows. At the same time, the USDX is slightly below its late-2020 top and slightly above its November 2021 top.

In light of the situation on the long-term USDX chart (as discussed above), this combination of support levels is likely to trigger a rebound and the continuation of the medium-term rally.

At the beginning of 2021, I wrote that the year was likely to be bullish for the USD Index, and my forecast for gold (and the rest of the precious metals sector) was bullish – against that of almost every one of my colleagues.

The USD Index ended 2021 about 6% higher, gold was down about 3.5%, silver was down almost 12%, the GDX ETF was down by about 9.5%, and the GDXJ ETF (proxy for junior mining stocks, my primary tool for shorting the precious metals sector in 2021 – I wasn’t shorting gold at any point in 2021) was down by about 21%.

What about this year? It’s a tough call to say how the entire year will go, but it seems to me that the USD Index will move higher, and we’ll see both in the PMs: a massive decline, and then a huge rally. It’s very likely to be a year to remember for anyone interested in trading gold, silver, and/or mining stocks and/or investing in them.

Let’s get back to the current situation.

The USD Index declined to fresh 2022 lows – well below the previous January lows, and also below the December and late-November lows. How did gold respond?

Gold rallied – but just by a mere $8.80. While gold got close to its early-January high, it didn’t manage to move above it. 2022 is still a down year for gold. Also, gold is clearly below its November 2021 highs, when it was trading close to $1,900.

Is gold showing strength here?

Absolutely not.

Gold is showing the opposite of strength. It’s weak and unwilling to react to the USD’s weakness. That’s exactly what I want to see as a bearish indication if I plan on entering a short position in the precious metals sector or when I’m timing an exit of a long position, or as a confirmation of a bearish narrative in general.

So, yes, of course I want to say that yesterday’s rally in gold was a bearish development. That’s the case, because gold should have rallied so much more, given what happened in the USD Index. Today’s overnight action makes the bearish case even clearer. The USDX is down a bit, but gold is down too, anyway. It simply doesn’t want to rally. Gold wants to decline instead.

Mining stocks and silver behaved similarly to gold yesterday – they didn’t move to, let alone above, their previous 2022 highs. Consequently, they confirm the indications for the gold vs. USD dynamic – they don’t point to something else.

Summing up, the outlook for silver, gold, and mining remains bearish for the medium term, and this week’s rally seems to be nothing more than a counter-trend breather.

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.

 

Fed Hawks Circle Over Gold. Will It Become Their Prey?

While the S&P 500 and the NASDAQ Composite recovered from sharp intraday losses on Jan. 10, investors’ mood swings signaled heightened anxiety. With the PMs whipsawing alongside the general stock market, more volatility should materialize in the weeks and months to come.

To explain, with the Fed on a hawkish warpath to fight rampant inflation, JPMorgan CEO Jamie Dimon told CNBC on Jan. 10 that a resilient U.S. economy could prove problematic for the financial markets in 2022.

“The consumer balance sheet has never been in better shape; they’re spending 25% more today than pre-COVID,” said Dimon. “Their debt-service ratio is better than it’s been since we’ve been keeping records for 50 years.”

As for inflation and the Fed:

“It’s possible that inflation is worse than they think and they raise rates more than people think. I personally would be surprised if it’s just four [interest rate] increases [in 2022],” he added.

How would the financial markets react?

Obraz zawierający tekstOpis wygenerowany automatycznieSource: CNBC

Singing a similar tune, the International Monetary Fund (IMF) warned on Jan. 10 that the Fed’s rate hike cycle could slaughter emerging markets. Its report revealed:

For most of last year, investors priced in a temporary rise in inflation in the United States given the unsteady economic recovery and a slow unravelling of supply bottlenecks. Now sentiment has shifted. Prices are rising at the fastest pace in almost four decades and the tight labor market has started to feed into wage increases.”

Volatile Days Ahead

While I warned for all of 2021 that inflationary pressures were bullish for the U.S. dollar and U.S. Treasury yields and bearish for the PMs, the IMF stated:

“Faster Fed rate increases in response could rattle financial markets and tighten financial conditions globally. These developments could come with a slowing of US demand and trade and may lead to capital outflows and currency depreciation in emerging markets.”

As a result, even the IMF is anxiously bullish on the USD Index:

For a good reason. With September, July, June, and May all gone by the wayside, now, the market-implied probability of a Fed rate hike in March has risen to nearly 83%. For context, the probability of a March liftoff was less than 10% in early November.

Please see below:

Likewise, the market-implied probability of four rate hikes by the Fed in 2022 has risen to nearly 87%. Again, the probability was less than 50% in early November.

Please see below:

Why the material shift? Well, while I’ve been warning for months that rampant inflation would elicit a hawkish about-face from the Fed, investors are finally coming around to this reality. With inflation still running hot, market participants understand that pricing pressures won’t subside without policy responses from the Fed. As a result, the “transitory” narrative is dead, and investors have lost one of their staunchest allies. This means that predicting silver and gold at higher levels in the medium term might not be the best idea.

To that point, Bank of America’s dove-hawk spectrum shows that the dovish brigade has lost several soldiers. With the hawks now on the offensive, the officials preaching monetary patience are few and far between.

Please see below:

For context, Bank of America still places San Francisco Fed President Mary Daly in the dovish bucket. However, I noted on Dec. 23 that she has materially shifted her stance in recent weeks:

Obraz zawierający tekstOpis wygenerowany automatycznieSource: The New York Times

Furthermore, with inflationary pressures still bubbling, the Manheim Used Vehicle Value Index hit another all-time high of 236.2 in December, as “wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased 1.6% month-over-month.”

Please see below:

On top of that, the cost of shipping from Shanghai, China, is still increasing. With the U.S. importing more goods from China than any other nation, the inflationary impact on the U.S. economy is material.

Please see below:

Finally, while the GDXJ ETF benefited from the NASDAQ Composite’s intraday reversal on Jan. 10, I warned on Oct. 26 that monetary policy tightening would eventually upend the junior miners. I wrote:

To explain, the green line above tracks the GDXJ ETF from the beginning of 2013 to the end of 2015. If you analyze the left side of the chart, you can see that when Fed Chairman Ben Bernanke hinted at tapering on May 22, 2013, the GDXJ ETF declined by 32% from May 22 until the taper began on Dec. 18.

Moreover, the onslaught didn’t end there. Once the taper officially began, the GDXJ ETF enjoyed a relief rally (similar to what we’re witnessing now), as long-term interest rates declined and the PMs assumed that the worst was in the rearview.

However, as the liquidity drain caught up to the junior miners over the medium term, the GDXJ ETF declined by another 36% from when the taper was announced on Dec. 18, 2013 until the end of 2015.

To that point, with part one already on the books, the second act will likely unfold once the Fed formally begins its taper in “either mid-November or mid-December.” Thus, history implies that the GDXJ ETF still has plenty of downside left.

While the junior miners’ ETF has declined by more than 11% since Oct. 26, Goldman Sachs has come around to our way of thinking.

Please see below:

To explain, Goldman Sachs told its clients last week that the yellow metal has been following its ominous path since 2013/2014 (as you may recall, I’ve been writing about the 2013-now analogy for months). For context, the red line above tracks gold’s price action from July 2010 until December 2014, while the blue line above tracks gold’s price action from July 2019 until now.

If you analyze the symmetrical overlay, you can see that the pair have been in sync for some time. Moreover, if you focus your attention on the red line’s plight as time passes, it’s clear why Goldman Sachs is warning its clients about “further downside risk”.

To that point, with the investment bank forecasting a real (inflation-adjusted) interest rate regime change in 2022, gold is poised to suffer along the way.

To explain, the various bars above track gold’s monthly returns when the real U.S. Federal Funds Rate (dark blue), the real U.S. 5-Year Treasury yield (green), and the real U.S. 10-Year Treasury yield (light blue) begin with positive/negative values and then increase/decrease.

If you focus your attention on the bars furthest to the right, you can see that when the real U.S. 5-Year Treasury yield and the real U.S. 10-Year Treasury yield are negative and then rise, gold suffers its worst monthly performances. Moreover, with the current fundamental environment presenting us with precisely that, similar results will likely materialize over the medium term.

The bottom line? While investors desperately bought the dip on Jan. 10, the more than 2% intraday swing in the NASDAQ Composite screamed of monetary policy anxiety. With another hot inflation print poised to hit the wire on Jan. 12, the reprieve will likely be short-lived. Furthermore, with the PMs suffering from a similar fundamental affliction – as both the PMs and technology stocks are extremely allergic to rising interest rates – volatility is likely here to stay. As a result, the Fed should continue to break investors’ hearts over the medium term.

In conclusion, the PMs rallied on Jan. 10, though their fundamental outlooks remain profoundly bearish. With interest rates poised to rise and the USD Index still undervalued, more headwinds should confront gold, silver, and mining stocks in the coming months. As a result, long-term buying opportunities are likely still a ways away.

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.