The precious metals sector is taking a breather right now, but looking at copper gives us insight into what’s next.
I commented on the copper market yesterday, and while those comments remain up-to-date, I’d like to emphasize something more.
The thing is that we saw a very specific pattern whenever copper started major declines. I marked the recent huge declines in the price of copper with red rectangles. The bottom part of the chart features gold (orange), silver (silver), and gold stocks (brown), and you can see something peculiar.
Namely, when copper started it major declines (the starting points of the red rectangles), the precious metal sector (it’s most visible in case of gold stocks) continue to move higher for some time. That time varied, but overall, the pattern was consistent.
- Back in 2008, there was a final run-up before the slide.
- Back in 2011, there was a final (and big) run up before the major top.
- Back in 2018, there was a small, brief upswing before the declines started.
- Back in 2022, there was a short-term run-up before the declines started.
In general, the USD Index either declined at the beginning of the moves or it’s been trading sideways. Later, it started truly massive rallies. This time, the decline in the USD Index was really notable, but it’s clear that a major bottom is already in – after all, the size of the recent upswing is truly breathtaking.
This means that while the recent (last several months) upswing in the precious metals sector seemed encouraging, it’s likely that a bigger decline is about to follow – just like it was the case in each red rectangle.
And since copper just verified the breakdown below its rising, medium-term support/resistance line, it seems that the slide in the precious metals sector is either already underway, or about to start soon, anyway.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief