Przemyslaw Radomski, CFA

Summary: the trading week is now over and GDX and GDXJ have both confirm their breakdowns below the neck levels of their broad head-and-shoulders patterns. This happened in terms of three consecutive closing prices and in terms of a weekly closing price. At the same time gold failed to rally in any visible manner despite a quite visible daily decline. The implications for the precious metals sector are very berish for the next several weeks/months (even though, the very short term is a bit unclear).

UPDATE: The week is almost over and GDX and GDXJ are now both almost certain to confirm their breakdowns below the neck levels of their broad head-and-shoulders patterns. If that happens, the implications will be VERY bearish for the next weeks for the entire precious metals market, not only for mining stocks.

UPDATE: The week is almost over and GDX and GDXJ are now both almost certain to confirm their breakdowns below the neck levels of their broad head-and-shoulders patterns. If that happens, the implications will be VERY bearish for the next weeks for the entire precious metals market, not only for mining stocks.

Mr. Hobbs, I would like to once again emphasize (as I've done in the above article) that gold has been moving lower for many weeks even though the USD Index didn't soar - yet. Today's move higher in gold by about 0.33% (at the moment of writing these words) is yet another sign of gold's weakness. The USD Index is testing its mid-January 2020 lows. Gold is about $100 below its mid-January highs. Moreover, please note that mining stocks (GDX) remain unchanged as well, and since it's only a few hours until the end of the trading for this week, it's almost certain that we will see the confirmation of the critical breakdown below the neck level of the broad head-and-shoulders pattern. The implications of the latter (and of gold's weakness relative to the USD Index) are very bearish.

falec: the last 3M show the most short-term moves in the Fed/ECB ratio, where it stayed virtually flat (which 1.3% effectively means) and the previous 12 months show a sizable rally. However, these two statistics don't show what's visible on the chart - that the ratio turned lower. Yes - the Fed printed more dollars in 2020, but then again the US dollar declined substantially in 2020. Now, the ratio has reversed its course, while the USD Index is only beginning to show strength. When we saw this previously (in 2011 and in 2014), the EUR/USD declined. The tops in the ratio and in the currency exchange rate were not perfectly aligned, but they were not far from either other, either. Consequently, since the ratio is already moving lower, one can expect the EUR/USD to fall as well. The weak fundamental indicators from the Eurozone seem to indicate more printing on the horizon.

UPDATE: Points made in the article above remain up-to-date, in particular given today's pre-market decline in gold DESPITE USD's weakness.

Yes, that's what I mean when I'm writing about owning physical gold and silver in case of one's "insurance capital". Precious metals are the ultimate hedge against the systemic risk, after all.

(typo: "rates are not fixed by" => "rates are fixed by")

 Once again, I agree that we are not in a free market. No market is truly free if the interest rates are not fixed by the monetary authorities instead of being allowed to float freely. But this doesn't mean that all price movements (including relative valuations) are random. As for additional angles for the USDX situation - you will likely find my Feb 5 analysis interesting: https://www.sunshineprofits.com/gold-silver/gold-trading/how-europes-underperformance-may-hurt-gold/ Once again, I agree that we are not in a free market. No market is truly free if the interest rates are not fixed by the monetary authorities instead of being allowed to float freely. But this doesn't mean that all price movements (including relative valuations) are random. As for additional angles for the USDX situation - you will likely find my Feb 5 analysis interesting: https://www.sunshineprofits.com/gold-silver/gold-trading/how-europes-underperformance-may-hurt-gold/

 I'm not very sure about the very near term, but I'd say that the odds favor the continuation of the decline - especially in light of today's weakness in gold relative to the USD Index. The latter declined and gold failed to rally. Also, mining stocks are likely to confirm their breakdown below the neck level of their head-and-shoulders pattern, which would be a VERY bearish development in my view. I can't tell you what you should do as that would be an investment advice and I can't provide such. I can tell you my general opinion, though. And my general opinion is that wouldn't want to have a long trading position in the precious metals market right now. In fact, I have a (profitable) short position in the mining stocks myself. I'm not very sure about the very near term, but I'd say that the odds favor the continuation of the decline - especially in light of today's weakness in gold relative to the USD Index. The latter declined and gold failed to rally. Also, mining stocks are likely to confirm their breakdown below the neck level of their head-and-shoulders pattern, which would be a VERY bearish development in my view. I can't tell you what you should do as that would be an investment advice and I can't provide such. I can tell you my general opinion, though. And my general opinion is that wouldn't want to have a long trading position in the precious metals market right now. In fact, I have a (profitable) short position in the mining stocks myself.

UPDATE: Today's decline in gold DESPITE the move lower in the USD Index further confirms points made above. The above analysis remains up-to-date, and so does the outlook.

Later, I've been correct about the declines in the precious metals prices since August 2020. So, I'm not sure what did you base your observation on.

There's only one way to never make a prediction that isn't fulfilled - and that is to not make any predictions at all. Silver did slide below its 2015 low, though. And as far as 2020 is concerned... Here's a link to the article from 2020 in which I wrote about going long GDX on March 13 https://www.sunshineprofits.com/gold-silver/gold-trading/gold--silver-trading-alert-3-2020-03-13/ - I haven't heard about anyone, who was closer to this buying opportunity. This was right after taking profits from the previous short position in the PMs and miners.

I can't say "why this could not happen again", because I'm quite convinced that this actually WILL happen again. In fact, I think that one of the most important signals that we'll get as a confirmation that the bottom is finally in will come from gold acting very strong despite USD's continuous strength.  "The whole world is printing money like crazy" and this is likely to contribute to much higher gold prices (just like what one would expect to see during the Kondratieff winter). However, that's a reason for gold to rally in the long run; it doesn't tell one anything with regard to the short run. And in the short run and also over the medium term, we see that gold is still very weak relative to the USD Index, which means that it's still likely to fall lower.

Well... I'm quite convinced that gold is not doomed forever and that it will be important in the future monetary systems in one way or the other, and I have thousands of years of history to back me up on this theory. On the other hand, given the pace at which the technology is developing, I'm also quite convinced that some form of electronic payments will be growing in popularity. But will that be the crypto market as we currently know it? The jury remains out.

One more thing - I'd say that fundamentals and technicals go together like a horse and carriage - IF one's technical perspective is long-term enough. That's why I usually prefer to focus on the long-term fundamentals and charts for a given market and only then zoom in. In my view, the fundamentals are very positive for gold and yet it's likely to decline in the short term based on other factors.

I agree in general :) I would like to point out that many people might use the phrase "market is strong" or "market is weak" in different ways. When I'm using it, I mean the relative performance (so, strong or weak compared to <something>) and/or the outlook. For example, something that declined severely but now is no longer declining despite bearish sentiment and is even breaking higher would be a "strong market" to me because of this resilience to bearish sentiment and the likelihood of seeing a short-term rally. If one defines a market as "strong" based on what happened previously, then USD would indeed be a "weak" market.

Agreed... It's very likely to happen in the following years, especially as we're entering the Kondratieff winter. BUT it's not likely to happen before another short- or medium-term slide, because of technical/cyclical factors and the fact that the USD Index has already verified its breakdown after being very oversold from the medium-term point of view.

Thanks :) I'm very happy to see that you enjoyed this free article. I hope that you'll enjoy my other work as well, which you'll find on my website.

I wouldn't say that gold stocks have stopped falling... The GDX and GDXJ are currently confirming breakdowns below their head and shoulder patterns (broad pattern that started approximately in May 2020) and if we see also the weekly close below the neck level of this pattern, it will be fully confirmed. The implications would be VERY bearish, especially given that practically all huge declines in mining stocks started with broad head-and-shoulders patterns (2013, 2008, and even the 2000 decline).

That's what's been taking place in the last few months, so I would say that it's quite possible. Alternatively, gold could trade sideways as the U.S. dollar continues to move lower. Again, I'm expecting the USD Index to rally either right away or relatively soon, anyway.

I have no doubt that gold will rally back above $2,000. In fact, it might rally well above $5,000 - you'll find more details by googling "gold rally above 6000 radomski". Still, I don't see this happening before another big decline. Gold's extreme weakness relative to the USDX is a "screaming" warning from this market.

As odd as your first sentence may sound - you're right. Gold - and practically everything else - might rally and decline based on purely emotional / technical factors. In fact, that's what's taking place most of the time over the very short term.

I wouldn't say that the crypto market key reason behind gold's weakness, but it might indeed be playing a part in it. Cryptos have all the interesting details and ease of use in the electronic world, but there are quite a few problems with them over the very long run. It would be hard to pay for anything without electricity or in case of severe disruption of the internet connections. It might get banned much easier than gold (will the monetary authorities allow individuals to take the power of controlling money away from them just like that?). And, what if quantum computation becomes a popular thing in the future and it's MUCH easier to generate cryptos? And gold stood the test of time for thousands of years.

Thank you for the compliment. I'm happy to see that you enjoyed reading my analysis.