The decline in world stocks has begun, which has profound implications for mining stocks.
After the tiny attempt to move to new highs was invalidated, world stocks started their slide. So far, the move is relatively small, but knowing what followed previous tops in the current price levels makes it likely that there’s much more to come.
I marked the previous cases (as well as the current ones) with orange rectangles. While world stocks have been making tops at the same price levels, mining stocks (lower part of the above chart) have been making lower highs in each case. This is remarkable, because gold rallied in the meantime, and it would theoretically make sense for gold stocks to rally as well. Despite local rallies, that hasn’t happened.
And now, as the world stocks appear to be on a verge of a much greater decline (i.a. due to their extremely overbought status and the fact that the yen carry trade is being reversed), the mining stock prices are also likely to collapse.
Speaking of the relative performance of gold stocks vs. gold, let’s take a look at their ratio.
The ratio has been declining for about two decades and it appears to have formed a very broad pattern that it had previously formed in 2012.
Interestingly, both patterns were completed once the ratio moved below the rising support line and then rallied above its 200-day moving average. Once RSI moved above and then back below the horizontal blue line, it was clear that the top was in.
The thing is that the decline that followed then was one of the most spectacular slides not just in mining stocks, but also in gold and silver. And yes – this fits the link with the worlds stocks and the situation in them perfectly.
On a short-term basis, we could see some more sideways trading in the near term, just as the consolidation after the first quick slide during the 2022 decline was longer.
GDXJ’s rebound might be visible on the above hourly chart, but you can’t really see it on the daily GDXJ chart.
Speaking of daily price moves, the GDXJ just closed at the lowest level since May 3, 2024. The invalidation of the breakout above the declining, blue resistance line will be a clear technical sign of weakness of mining stocks in the short term, and it’s something likely to lead to further declines. The combination of strong support levels is currently around the $34 level, and this is where we might see a bigger corrective upswing. For now (even though we might still see a quick upswing here), the next big move is likely to be to the downside.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief