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Metal Market: Weak Rare Earths, Weak Mining Stocks, Strong Opportunity

Published 06/18/2024, 03:34 PM

It will be a quick update today, as the situation is almost identical to what it was in the previous days.

In other words, the situation is developing in line with what I wrote previously.

Quoting my analysis from yesterday:

Gold moved higher, as it’s still consolidating below its 50-day moving average, preparing for another big move lower.

Gold Futures Chart

Some back-and-forth movement here is normal and it’s in perfect tune with what we saw in 2011 after a very similar double-top pattern.

That’s exactly what continues to happen in the gold market.

Silver Futures Chart

Silver's Tight Trading Range

Silver is trading back-and-forth in a tight trading range below $30 and below its 2020 and 2021 highs, further confirming that the move back below those lows was not accidental.

The breakout above those levels was clearly invalidated, which was a powerful sell signal. Its implications are about to unfold and take silver to much lower levels – likely well below $25.

GDXJ Chart

We saw another tiny move higher from the 38.2% Fibonacci retracement, but this one is even smaller than the previous one. It changes nothing – the subsequently smaller rebounds are similar to stone skipping. Eventually, it will plunge. And since the above chart is based on hourly candlesticks, it seems that the move below the 38.2% retracement is just around the corner.

There are two more charts that I’d like to share with you before summarizing.

One of them features the euro index.

XEU Chart

The thing that I’d like you to focus on is the fact that the EUR/USD moved a little lower from its declining resistance line, confirming that this line held.

This is important, because it means that the trend remains down, and the upside here is very limited. The downside, however, is huge.

After similar situations (I marked them with red ellipses) the euro declined profoundly, and it was often accompanied by huge declines in the precious metals market, especially in 2008 and 2014.

We saw the biggest declines in 2008, when the stock market fell as well, and since stocks are extremely overvalued now and we saw similarities to 1929, it seems that we’re going to see a slide in them also this year. This creates a particularly bearish combination for mining stocks.

Rare Earths Investment Warning

Finally, please take a look at what seemed to be a great investment opportunity that I warned about – rare earths.

REMX Chart

In mid-January, when VanEck Rare Earth and Strategic Metals ETF (NYSE:REMX) (ETF specializing in rare earth minerals) was still above $50, I warned that since it was highly correlated with copper but much weaker, it didn’t present a good investment opportunity. Indeed, even though copper moved higher since that time (and so did the stock market), REMX declined.

Is this a buying opportunity in rare earths? Most likely not. It doesn’t seem that the sector has fallen enough – there are no signs of its strength yet.

Remember, REMX and junior miners bottomed together in early 2016 and in 2020 – the above is also a subtle sign that miners have further to fall. Most likely much further, which creates a great opportunity for those who are prepared for it.

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