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Remember when miners were very strong relative to gold and USD in 2011? Guess what.
Taking the time factor into account makes both situations even more alike.
Echoes of 2011’s Irrational Surge
Back in 2011, it was for three weeks – 15 trading days – that miners were moving higher despite the move up in the USD Index. That’s how long the irrational strength persisted. This was all erased in a single session, which was then followed by even more declines that erased weeks of gains in a matter of days.
What’s going on right now?
Right now, it’s more difficult to pinpoint the exact day when miners’ ‘strength’ started, as the USD Index is not in a clear uptrend (yet) – it’s moving back and forth with higher short-term lows.
It’s obvious that miners have been strong since Aug. 20, and to a smaller extent they were also strong relative to the USD Index since Aug. 8. Finally, while it’s less clear, it’s also true to say that the GDXJ has been strong since the beginning of the month (precisely: Aug. 5) as that’s when the GDXJ started to rally much more than it made sense given USD’s performance.
Guess what – Aug. 5 was 15 trading days ago.
This means that miners have not broken their link to 2011 – they are in perfect tune with it.
The history doesn’t have to repeat itself to the letter, but it does tend to rhyme. This means that miners can slide right away here, or it might take several more days before they slide. But either way, it looks like the end of this rally is at hand.
USD Index Points to the Upside
The USD Index itself appears indecisive, but it seems to me that its next big move will be to the upside based on its long-term chart.
Gold’s verified breakdown confirms the same thing (even though it moved higher, providing a quick trading opportunity).
USD’s comeback after declining to its previous lows also says that we should brace ourselves for a bigger rally in it. After all, the Fed just became dovish, Trump continues to pressure it and… the USD Index still held up well – and gold failed to rally above its resistance line.
It looks like all the positive surprises for the precious metals market are already behind us. The price got all the boosts, and its value is therefore high NOW. Again, it’s high now based on all this – those are not factors pointing to further increases. It’s all already priced in. The same goes for the rate cut.
