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More Breakdowns in Mining Stocks – All Eyes on the USD

Published 01/10/2024, 02:06 PM
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Gold miners just moved to fresh 2024 lows, and we saw additional breakdowns.

The decline continues, as expected.

In yesterday’s analysis, I wrote about breakdowns in various proxies for the mining stock sector, and I emphasized that we haven’t seen them in all proxies, so the pause that we see here is normal.

The most important thing about the situation was that the outlook remained bearish i.a. due to long-term signs from gold (its weekly reversal!), the USD Index (invalidation of the breakdown below its rising, long-term support line), and the stock market (S&P 500 futures and tech stocks invalidated the moves above their previous all-time highs).

What we saw during yesterday’s session – miners’ move to new yearly lows – confirmed this outlook. We saw additional breakdowns as well. Let’s take a look at the mining stock proxies.GDX-Hourly Chart
Senior miners – the GDX (NYSE:GDX) ETF – moved and closed the day below the rising, short-term support line, which is a new bearish confirmation.GDXJ-Hourly Chart
Junior miners were already after their very short-term breakdown, and yesterday, they simply moved to the lower border of their rising trend channel. Seeing a pause or even a tiny (!) rebound here wouldn’t be that surprising given that, but seeing a decisive breakdown and a big move lower wouldn’t be surprising either – after all, this is a medium-term downtrend for the miners.HUI-Hourly Chart
The HUI Index – proxy for gold stocks – moved close to its rising short-term support line, which could indicate a pause.XAU-Hourly Chart
The XAU Index – proxy for gold stocks and Silver stocks – moved and closed below its rising, short-term support line, which is an important breakdown. This is the second new breakdown (in addition to the one in the GDX).

SIL-Hourly Chart
Senior silver stocks moved lower after verifying the breakdown. The outlook here has been bearish and it’s bearish today as well.SILJ-Hourly Chart
The same with silver junior miners. The move lower in them continues and it’s likely to become much bigger.

All in all, while the HUI Index is hesitating, and silver stocks are already declining decisively, the GDX and GDXJ are poised to move MUCH lower. The only question is if they slide right away, or after another tiny rebound or pause’s continuation.

Silver-Technical Chart
The head and shoulders formation that we just saw in silver continues to support lower prices – the back-and-forth movement here is simply bearish, because since the formation was not invalidated, and the slide based on it didn’t materialize yet, it’s still likely to happen.

It looks like the markets are waiting for a trigger…

And this very likely IS the case. That trigger and the market that’s key to the above-mentioned declines (as well as to the declines on the stock market and to the declines in many other commodities and commodity stocks like Chevron Corp. (NYSE:CVX)) is the USD Index.

Precious metals as well as commodities (e.g. copper, crude oil) are priced in the U.S. dollar, so the value of the latter will always (ok, there are some exceptions, like when something important is happening in the Eurozone, but let’s not go into details today) have an immense impact on the values of the former.USD-Daily Chart
Ladies and Gentlemen,

The US Dollar Index is breaking higher as I’m writing these words. Precisely, it broke above its declining resistance line, and it’s now verifying the breakout as it moved back to the line that it had broken.

There are two ways in which this is likely to go, and one of them is more likely.

The less likely way, in which this all could develop is that the USD Index fails to break above the resistance line, just like it failed several days ago. In this case, we would likely see another small (to 101.5 or so) move lower, which would then be followed by another consolidation, and then another attempt to break higher. That attempt would be likely to succeed. And if not, then the next one. Either way, if we don’t see a breakout here, what I see as likely is consolidation’s continuation and then a successful breakout. This implies a pause in the precious metals market now, and a slide later (in a week or so).

The more likely way, in which this all could develop is that the USD Index verifies the breakout, and it soars. This is likely not only because we already saw the breakout, but also given the symmetrical nature of the current consolidation relative to the one that we saw in mid-December. The slide leading to the mid-December consolidation was sharp, so the rally that follows the current consolidation, is likely to be sharp as well. This, in turn, means that we won’t have to wait for long to see bigger declines on the precious metals market.

In consequence, the breakdowns that we already saw in some proxies for mining stocks are likely to be followed by bigger slides, and we’re likely to see breakdowns in the remaining proxies (like the HUI Index). Either way, the outlook for the precious metals market (and commodity stocks, like FCX) is very bearish.

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