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Is the Fate of Gold Miners Already Sealed?

By Sunshine Profits (Przemyslaw Radomski, CFA)CommoditiesNov 23, 2022 12:42AM ET
www.investing.com/analysis/is-the-fate-of-gold-miners-already-sealed-200632690
Is the Fate of Gold Miners Already Sealed?
By Sunshine Profits (Przemyslaw Radomski, CFA)   |  Nov 23, 2022 12:42AM ET
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The star pattern turned out to be an accurate prediction of gold's decline. If the dramatic downturn stage begun, what will happen to the GDXJ?

In yesterday’s analysis, I emphasized that gold’s shooting star reversal was a very bearish indication for gold. Indeed, gold declined. What’s next?

Quoting my yesterday’s analysis:

Last week was full of events, but the most important one clarified after Friday’s closing bell – gold formed a reversal “shooting star” candlestick.

The implications are just what you think they are. After a sharp run-up, the rally has run its course, and the yellow metal is now about to slide again.

Let’s take a closer look.

Gold Weekly Chart
Gold Weekly Chart

The corrective upswing was quite sizable and sharp. It was bigger than what we saw in July and August 2022, and this time, gold needed just two weeks to rally, instead of four.

Back in mid-2022, it then took gold three weeks to decline to more or less where the corrective rally started. So, yes, gold fell a bit faster than it had climbed.

History rhymes, so this time, the decline could be sharper than the rally as well. And since the rally took just two weeks… It looks like the next week or two might be very interesting for gold investors/traders. And bearish.

Actually, the next ~1.5 weeks because this week’s trading will be limited due to Thanksgiving.

You might be wondering why I forecast that the gold price would be about to “slide” instead of just moving lower in a more or less regular manner.

The analogy to what gold did in 2013 is one of the major reasons.

Gold Weekly Chart
Gold Weekly Chart

The first thing that you can notice on the above chart is that it looks just like the previous one, even though they are almost a decade apart. And that’s true.

How is that even possible, given different economic and geopolitical realities? It’s possible because the key drivers behind decisions to buy and sell remain the same: fear and greed. Those don’t change, people tend to react similarly to similar price/volume patterns.

Of course, each situation is specific, which is why history doesn’t repeat itself to the letter, but it does tend to rhyme.

When you compare the situations marked with orange on both charts, you’ll realize that we’re most likely in a situation where gold is just before a major slide.

Consequently, last week’s “shooting star” candlestick is not “just” a reversal pattern. It’s a reversal pattern that likely marks the beginning of a new stage of the bigger self-similar pattern. A stage that is characterized by a dramatic downswing.

Gold declined by almost $15 yesterday, so it seems that the above-mentioned decline is already underway.

GDXJ Daily Chart
GDXJ Daily Chart

Mining stocks haven’t declined profoundly yet, but that’s probably due to the fact that stock market prices haven't declined so far either.

As gold declines more, miners are likely to follow it lower pretty much regardless of what the stock market does, but still, it seems very likely to me that the latter will slide anyway. And yes, stock prices’ decline would be likely to result in much lower mining stock values.

In other words:

  • If gold declines significantly but stocks don’t, miners are likely to decline significantly anyway.
  • If gold and stocks decline significantly, miners are likely to decline in an extreme manner.

In my view, the latter is the most likely outcome for the following weeks/months.

SPX Daily Chart
SPX Daily Chart

I previously wrote that the S&P 500 Index failed to break above the 4,000 level and its 38.2% Fibonacci retracement level. At the moment of writing these words, the S&P 500 futures are trading at about 3,950. This resistance remains intact. Stocks have been unable to move above those levels, which means that the bearish implications of their failed attempt remain in place.

The current medium-term trend remains down, and the above paragraph indicates that it’s about to resume.

As I wrote earlier, this is likely to have profoundly bearish implications for mining stocks. It’s also the case with regard to silver prices, but let’s keep in mind that silver tends to catch up with gold and mining stocks in the final part of a given move. Consequently, miners could decline profoundly first, and silver could decline profoundly a bit later.

Is the Fate of Gold Miners Already Sealed?
 

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Is the Fate of Gold Miners Already Sealed?

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Comments (7)
Jack OH
Jack OH Nov 25, 2022 8:54PM ET
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Please. Watch Dollar index & Realestate market!
John Locke
John Locke Nov 24, 2022 9:16AM ET
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you're wrong. bottom is in. keep shorting you're going to get smoked
Ken KK
KEN_K Nov 24, 2022 12:36AM ET
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It's like watching Bugs bunny with the Gremlin in the plane scene diving towards the ground 🫨
Bernd Langer
Bernd Langer Nov 23, 2022 9:35AM ET
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Radomski, it is not by repeating your nonsense on a daily basis that your predictions will become true. I believe the bottoms for gold and silver are in. The recent strength of the miners is further supporting this.
Mr Doodl
Mr Doodl Nov 23, 2022 9:22AM ET
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same statements over and over again
Varun Aggarwal
Varun Aggarwal Nov 23, 2022 6:59AM ET
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gold and silver is showing bull sign only
Dwain Hobbs
Dwain Hobbs Nov 23, 2022 4:41AM ET
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Radomsking going hyperactive mode again with a bearish article every day ,,, we can cut sugar from kids but what can we do with you ?
 
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