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Junior Miners Should Be Rallying – What’s Holding Them Back?

By Sunshine Profits (Przemyslaw Radomski, CFA)CommoditiesMay 14, 2021 12:02PM ET
www.investing.com/analysis/junior-miners-should-be-rallying--whats-holding-them-back-200580178
Junior Miners Should Be Rallying – What’s Holding Them Back?
By Sunshine Profits (Przemyslaw Radomski, CFA)   |  May 14, 2021 12:02PM ET
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Junior miners may soon suffer a breakdown of the short-term support line. So, what’s responsible for their underperformance of gold and stocks?

Today’s technical part of the analysis is going to be brief, as I have discussed multiple things this week and my comments remain up-to-date. There’s not much to add today, and we’ll go over only one technical chart – the one where we have trading positions – the VanEck Vectors Junior Gold Miners ETF (NYSE:GDXJ) chart. Unlike in the previous days, today I’m going to look at it from the more short-term point of view – through the four-hour chart.

Before looking at it, please note that yesterday’s (May 13) session was relatively boring in the case of gold futures (they ended the day $1.20 higher), and quite positive for the GLD (NYSE:GLD) ETF, at least at first sight, as it closed $0.70 higher. The seemingly odd discrepancy between the two is just a result of different times that are taken into account for calculating both markets’ performance. All in all, yesterday’s session was positive for gold.

The S&P 500 index ended yesterday’s session 1.22% higher. At face value, this seems positive. Technically, it was just a comeback to the previously broken lows (mid-April and early May ones), which was followed by a small move lower before the end of the day, so from this point of view, this session was bearish.

Taking day-to-day price changes, though, yesterday’s session was positive for both: gold and the general stock market. Consequently, the GDXJ ETF should have rallied as its price is generally influenced by both. And what actually happened?

GDXJ 4-Hour Chart.
GDXJ 4-Hour Chart.

The GDXJ ETF declined by 1.18%.

This is an extremely bearish short-term sign as its obvious that exactly the opposite happened to what was actually supposed to happen. The most likely reason? Junior miners simply can’t wait to decline.

Junior mining stocks (the GDXJ ETF is often used as a proxy for them) declined to their rising short-term support line yesterday and ended the session close to it. There was no breakdown, but given the weak trading performance compared to gold and stocks, it seems that we won’t have to wait for it to materialize.

And speaking of relative performance – it’s not just the day-to-day performance. Yesterday’s intraday low in the GDXJ ETF was just one cent above the intraday March high. For comparison, gold’s intraday low yesterday was over $50 above its intraday March high. And the S&P 500 was 91.12 index points (over 2%) above its intraday March high.

My May 11 comments on the additional reason behind juniors’ weakness remain up-to-date:

But what about juniors? Why haven’t they been soaring relative to senior mining stocks? What makes them so special (and weak) right now? In my opinion, it’s the fact that we now – unlike at any other time in the past – have an asset class that seems similarly appealing to the investment public. Not to everyone, but to some. And this “some” is enough for juniors to underperform.

Instead of speculating on an individual junior miner making a killing after striking gold or silver in some extremely rich deposit, it’s now easier than ever to get the same kind of thrill by buying… an altcoin (like Dogecoin or something else). In fact, people themselves can engage in “mining” these coins. And just like bitcoin seems similar to gold to many (especially the younger generation) investors, altcoins might serve as the “junior mining stocks” of the electronic future. At least they might be perceived as such by some.

Consequently, a part of the demand for juniors was not based on the “sympathy” toward the precious metals market, but rather on the emotional thrill (striking gold) combined with the anti-establishment tendencies ( gold and silver are the anti- metals, but cryptocurrencies are anti-establishment in their own way). And since everyone and their brother seem to be talking about how much this or that altcoin has gained recently, it’s easy to see why some people jumped on that bandwagon instead of investing in junior miners.

This tendency is not likely to go away in the near term, so it seems that we have yet another reason to think that the GDXJ ETF is going to move much lower in the following months – declining more than the GDX (NYSE:GDX) ETF. The above + gold’s decline + stocks’ decline is truly an extremely bearish combination, in my view.

Junior Miners Should Be Rallying – What’s Holding Them Back?
 

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Junior Miners Should Be Rallying – What’s Holding Them Back?

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Comments (11)
Paul Miles
Paul Miles May 25, 2021 5:50PM ET
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You are an extremely confused person. the Federal reserve is now going to get what they always wanted inflation. and if we do defeat they'll revalue the one thing that you're short....Just repeat this over and over again to yourself. Gold, grant me the serenity to accept the gold price I cannot change, courage to change the things I can, and wisdom to know the fundamentals outweigh my short position. Because charts can't work when you're playing with the Federal reserve. No emotions. You are trapped in a fantasy
Erikas Ivan
Erikas Ivan May 17, 2021 9:41AM ET
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Currently, gold is trading only slightly than the 2013 price action, when one of the biggest slides took place. Gold prices collapsed even during their 2020 attempt to rally more than the 2011 high. It's the easiest thing in the world right now to stay bullish, but gold's downside move will tell us otherwise.
Golden Nugget
Golden Nugget May 15, 2021 1:56PM ET
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Yeah he said GDX would top at 34 before collapsing. Didn't happen. He said king dollar is in an uptrend lol. Gold is ready to make a shocking move higher. 3k within 18 months.
Bernd Langer
Bernd Langer May 15, 2021 4:16AM ET
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Just as I thought he would finally stop posting, here he is touting again! If at least, you would have put up your article one day earlier, your fan base may have followed your logic. Now, after a 3.29% gain of GDXJ on Friday, even your hardcore admirers won’t believe your claims.
Triton Lux
Triton Lux May 15, 2021 1:43AM ET
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Your analysis is an indication gold is heading much higher... wrong as always...
Jan Buyle
Jan Buyle May 14, 2021 6:52PM ET
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Juniors always rally late in gold and silver bull markets. Why don't you know that? It's been like that in every pm bull market in history.I really have very big doubts about your competences as an analyst. Sorry.
murat soycengiz
murat soycengiz May 14, 2021 5:01PM ET
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this person says shorting gold since 1280 and he said the same thing 1300, 1400 , 1500,1600 then gold reach to 2040 then he wait and when it is going down he said that it would go to first 1400. he said again 1730 it would go to 1400 again and he said that his analysis is for trading. gold return back to 1830. all shorts of 1730 burn out. I wonder what is his intention, to show everybody how one can be so wrong so long time or everybody has a fish memeory.
Andre Duarte
Andre Duarte May 14, 2021 3:21PM ET
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Hahahahaha go back to the cave xD
Marco AP
Marco AP May 14, 2021 2:43PM ET
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this guy needs some very basic understanding of macro conditions, Debt, Interest rates and so on. If you listen to this dude, you'll miss every move in precious metal. Stay away!
random rx
randomx May 14, 2021 1:43PM ET
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this dude does not understand the concept of "follow the trend". yes, we get it. eventually it'll correct itself like any other market (maybe july) but for now it's bullish. it's been bullsih since the end of march
Jason Spell
Jason Spell May 14, 2021 12:28PM ET
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They aren't down from massive institutional shorting? Or the suppression of gold price by JPM?
 
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