Mining stocks reversed in a clear way. As it's usually the case, gold is following.
After I sent out the intraday Alert yesterday (in which I emphasized that in my view this is a good opportunity to either add or enter into fresh short positions in junior mining stocks), miners declined and ended the day only $0.03 above their previous day’s closing price.
They reversed pretty much completely, and they also underperformed gold, which didn’t erase all its intraday gains. Those are both confirmations that the top is in.
Gold ended yesterday’s session in the green, and it’s declining in today’s overnight trading. As I wrote in the opening paragraph – miners led the way.
Zooming out of the situation is still the best way to assess what’s currently going on. I’ll first quote what I wrote previously (it remains up-to-date) and then I’ll add one extra detail.
The recent rally is normal given the previous assumptions about the market and does not invalidate them.
I mean the scenario in which miners form a short-term bottom below the recent lows. The recent rally seems significant on a day-to-day basis, but looking at it from the medium-term point of view reveals that it’s nothing to write home about.
It’s common for the GDXJ to move up by about $3 only to then slide to the final short-term low.
I marked the previous analogous cases with short, dashed blue lines and I also pointed to them right on the chart.
In early 2021, mid-2021, mid-2022, and in mid-2023 we saw the same thing. Junior miners soared back up in a fake rally that took the price back to its 50-day moving average (marked with blue). And then the final decline materialized.
Where did the recent rally take the GDXJ?
Slightly above its 50-day moving average.
So, not only is it the case that the medium-term downtrend clearly remains intact and not only do our short positions in the GDXJ remain profitable, but it is also the case that we just saw what usually happens right before the final short-term downswing. Even another small move up (perhaps to $35 or so) would be unlikely to change the outlook.
While the situation in gold is unclear for the next 1-2 days, it’s likely that it will turn south sooner than later and that mining stocks will decline once again as well. At least that’s what chart analysis implies, and it’s generally profitable to follow cold analysis rather than emotional momentum regardless of how tempting and irresistible it might seem when the “hot price move” is taking place.
Of course, the situation can change on any given day (or hour) and in this case I will keep my subscribers informed.
The GDXJ moved briefly above $35 only to end the session back below this level. Our short position in the GDXJ / JNUG remains profitable.
The thing that I would like to add today is that the GDXJ moved briefly above its 200-day moving average (marked with red), and it was this event that marked the top during the previous analogous situation, when the GDXJ rallied just before the final short-term slide – in August 2023. The history rhymed.
The RSI based on the price of gold moved visibly above 70, which likely marks a major top here.
My comments on gold’s seasonality, volume, price patterns and the price level itself remains up-to-date, and what we saw in mining stocks as well as the RSI confirm that it’s an excellent shorting opportunity.
Quoting my previous analysis:
Let’s start with a very big perspective – what usually happens in March?
Based on the 2002-2018 data, gold price tends to top in late-Feb or early March. Here’s what happened in the following years:
Again, gold either declined in early March or it first rallied and then declined.
There was a notable exception in 2023, but at that time gold was after a clear decline – this was not the case recently.
So, first of all, this is not a good time for gold to soar and then hold those gain. Instead, it looks like a good time for gold to top.
Let’s keep in mind the fundamental/emotional background that I discussed earlier – since the rally “didn’t have legs” and was most likely just emotional, it’s unlikely to break the regular top-in-early-March pattern.
Second, some might say that since gold rallied on strong volume then it heralds even higher prices. Let’s check. Please focus on the vertical, blue, dashed lines – they mark cases when gold rallied on strong volume after periods of movement on average volume. In most cases, those moments were close to local tops.
Finally, it’s not just the time and volume that suggest a turnaround here – price at which gold currently is, also indicates the same thing.
Gold price just moved slightly above its 2020 top. This top served as resistance five times (or six, if you count the April 2022 attempt) – this is the sixth / seventh attempt to move above it.
Since the resistance here is very strong and it already proved to work, it’s likely that gold price will turn south from here.
Time, volume, price and my analysis of what happened and what didn’t happen – all suggest that this is a top in the making. What about the shape of gold’s recent movement?
Gold formed a huge top in December 2023 and then it formed two distinct tops close to the 61.8% Fibonacci retracement level. Now it might be forming the third one.
The current rally took gold way above its initial highs, but it’s still below its initial December high.
Does it look familiar to you?
If you’re new to the gold market it might not, but if you’ve been following it for longer, it should. Let me refresh your memory.
A distinct top, and then three tops close to the 61.8% Fibonacci retracement based on the initial decline.
Yes, this time gold moved well above its 61.8% Fibonacci retracement, but the second top was below that level, and it’s also true that history rhymes – it doesn’t repeat itself to the letter. Overall, both patterns are still similar, just not extremely so.
That was what preceded one of gold’s biggest declines – the slice from about $1,800 below $1,200.
And yes, silver and mining stocks were underperforming gold at that time, just like they are underperforming it right now.
Time, volume, price, my analysis of what happened and what didn’t happen, gold’s price patterns, and the relative performance of silver and mining stocks – all point to lower, not higher, gold prices in the following weeks. PLUS the RSI above 70, PLUS a reversal in mining stocks.
Is this REALLY such a great buying opportunity?
Also, whenever gold attempted to soar above its 2020 high it then reversed and started to decline within one day.
This time, given that investors might be waiting for Powell’s testimony, hoping for dovish confirmations, the “rumor stage” got extended.
But overall, the previous points remain intact – the history rhymes, it doesn’t have to repeat to the letter. The implications are still bearish, even though the next several hours are unclear.
As I wrote in yesterday’s intraday Gold Trading Alert – I view the current situation as a great chance to either enter short positions in junior mining stocks or add to existing ones (provided that one doesn’t have a position that’s as big as they want it to be).
Of course, the situation can change on any given day (or hour) and in this case I will keep my subscribers informed.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief