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In Race To The Bottom, Miners Beat Gold

By Sunshine Profits (Przemyslaw Radomski, CFA)CommoditiesSep 15, 2021 11:21AM ET
www.investing.com/analysis/in-race-to-the-bottom-miners-beat-gold-200602046
In Race To The Bottom, Miners Beat Gold
By Sunshine Profits (Przemyslaw Radomski, CFA)   |  Sep 15, 2021 11:21AM ET
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The medium-term outlook for precious metals is a bearish one, and as gold moves lower, the miners will move lower faster. Small price jumps don’t count.

Let’s get this straight, we’re not day traders, and getting excited about an occasional bounce is much ado about nothing.

Remember when I told you yesterday that the “strength” of gold stocks was likely more or less random and not a true sign of strength? Yesterday’s lack thereof confirmed it. Gold moved higher, but gold stocks almost didn’t. Implications? That was just a tiny, inconsequential, counter-trend upswing within a bigger decline.

Let’s take a look at what senior miners and junior mining stocks did yesterday.

GDX Daily Chart.
GDX Daily Chart.

The GDX ETF (NYSE:GDX) was up by a mere $0.16 and it closed the day very close to where it had closed on Aug. 23 – just a day after it rallied from its recent lows. In other words, the current GDX ETF price is practically just a single-day rally above the yearly lows. At the same time, gold is trading over $130 above its yearly lows. Are senior gold stocks really showing strength? Absolutely not.

GDXJ Daily Chart.
GDXJ Daily Chart.

As far as junior miners are concerned, the situation is similar, but even more bearish. In VanEck Junior Gold Miners ETF (NYSE:GDXJ), we have another sell signal coming from volume. It spiked, and the last time we saw the volume this high, was in mid-May. And what happened in mid-May? It was not the exact top, but it was very close to it, and shortly before a $15+ decline started. It was a perfect time to enter a short position in the junior miners, or one could use this indication as reassurance that this position is justified from the risk to reward point of view. (Of course, there are many more factors that point to this direction, not just the volume spike in the GDXJ ETF.)

Overall, juniors are verifying their previous breakdown to new yearly lows, and they are successful in this verification. This opens the door to huge declines wide open.

Gold Daily Chart.
Gold Daily Chart.

Just like I wrote earlier today, gold moved higher yesterday (it’s down in today’s pre-market trading, though), but it didn’t break any important resistance level, so this move was rather inconsequential. The outlook for gold and gold stocks remains bearish.

By the way, do you recall when I wrote that gold was likely to reverse in the second half of September or in the middle thereof, but that we’ll know more when we get closer to this date? Well, it’s the middle of the month today, and it’s obvious that we didn’t see a major decline in the recent days, just a relatively small one.

Consequently, it seems that the reversal that I mentioned previously will not be an important bottom, but an important top. This makes sense in light of the upcoming FOMC (in one week), which is likely to trigger some short-term volatility. Will the PMs and miners rally until the Fed speaks? It’s unclear, and not that likely. They could decline beforehand, or they could do nothing. The very near term is unclear, but that doesn’t matter that much, as the medium-term is very clear – the gold, silver, and mining stocks are going down.

One of the reasons is the more-than-confirmed breakout above the neck level in the USD Index’s inverse head-and-shoulders pattern.

U.S. Dollar Chart, With Gold And Silver Chart.
U.S. Dollar Chart, With Gold And Silver Chart.

It took about a year for this bullish pattern to form, so it’s likely that its consequences will also be of medium-term nature. So far, the USDX has been moving back and forth, but when it finally moves, it’s likely to rally above 97, as the targets based on this formation are based on the size of its “head” (marked with green, dashed lines).

As the USD Index rallies, gold is likely to move lower. And as gold moves lower, gold stocks are likely to move lower faster, as they’ve been underperforming gold for months. And as senior gold miners move lower faster, junior miners are likely to move lower even faster.

In Race To The Bottom, Miners Beat Gold
 

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In Race To The Bottom, Miners Beat Gold

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Comments (4)
peter neal
peter neal Sep 16, 2021 8:34AM ET
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Technical Analysis doesn't work. It's an after the event method.
Jill Fisher
Jill Fisher Sep 16, 2021 8:32AM ET
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First many thanks for your report. It seems that gold and silver will not move to the upside in the next 3 years cause FED will speak every month and the chart confirms allways the bearish direction. May I ask you, what conditions could justify a bullish rally for PM's in your opinion?
Bobbie Flores
Bobbie Flores Sep 15, 2021 10:40PM ET
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Sounds like we got a dollar bull gold bear
Paul Miles
Paul Miles Sep 15, 2021 11:56AM ET
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how's that dollar call going buddy!?
 
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