It seems like I wrote yesterday’s analysis one day too early. What I described as normal – just happened.
I mean the rebound in the GDXJ – after writing that a daily rebound would be in tune with how things developed in 2022, we saw exactly that. Quoting:
The GDXJ moved back up after touching $40.09 (so, after almost moving to its previous 2024 high), but that’s well within what could be considered “normal” here.
And by “normal” I mean what is just like what happened during the previous similar case – after the 2022 top that also took place when the GDXJ broke above its previous declining resistance line.
Back then we even saw a daily (small, but still) rally right before the GDXJ moved back below its previous high.
On Tuesday, GDXJ had declined by 1.76%, and yesterday, it moved up by 1.54% - that’s a perfectly normal rebound.
Gold and silver have not been doing much yesterday and earlier today – they are moving back and forth.
This means that the very bearish implications of last Friday’s huge reversal in gold, silver, and mining stocks remain intact. And so do my comments on the current rebound / pause and its link to the geopolitical tensions:
Yes, the tensions in the Middle East are increasing once again, and gold moved higher yesterday. And yes, this effect is likely to be only temporary. Remember about the… War in Europe? In the immediate aftermath of the Russian invasion, gold moved higher, but most of the move happened beforehand, based on rising tensions. The key thing, however, is that once the war escalated, gold price declined, and then it kept declining for months, while the conflict didn’t end.
There were also many other cases, when gold reacted to geopolitical events in this way – it moves higher initially, and then it moves back down when the situation stops escalating, and then declines regardless of what happens – unless something really major and unexpected takes place. You can read more about this in our Explanations section.
Also, please note that while gold has a safe-haven appeal, this doesn’t necessarily apply in case of silver and mining stocks.
And indeed – the GDXJ, proxy for junior miners – is down by 1.26% so far this week, while silver (SLV) is up by 0.86% and gold (GLD) is up by 1.24%.
This is a critical underperformance of junior miners – and it serves as a perfect confirmation of the point that I’ve been making. Namely, that the downside potential and the risk/reward ratio for a short position in junior mining stocks right now is better than the one in case of gold.
Meanwhile, the USD Index is taking a breather, just as it was likely to. Quoting my yesterday’s analysis:
The USD Index is after a big short-term upswing and the RSI based on it is above 70, suggesting a pullback, but taking a closer look at how things developed after a similar situation in the RSI (marked with orange rectangles), it seems that we might only see a pause that’s then followed by more rallies.
When we saw something like that in September 2023, gold and silver moved sideways and then they declined when the USDX resumed its upward march.
Let’s not forget that the overbought status concerns the short-term picture only. From the long-term point of view, the rally is likely just getting started.
The USD Index is after a major, medium-term breakout and it’s now likely to rally significantly. It’s unlikely that gold would be able to ignore the upswing of this magnitude, especially if stocks fall. And silver as well as the mining stocks would be likely to truly slide in this kind of environment. Remember 2008? Exactly.
And speaking of stocks… They (the S&P 500 Index) just closed below their lowest daily close of March.
This is important given the context that I provided previously – the link to 1929 is stronger with each passing day.
I posted the below screenshot over EIGHT weeks ago.
Here’s what happened on August 8, 1929, and later:
Stocks continued to move higher for about three weeks, and then they plunged in a massive way.
The top formed at the turn of the month and then the price declined in a back-and-forth manner for approximately two weeks. The decline accelerated in the second half of the month.
That’s exactly what we see this week. Stocks’ decline accelerated – just like what it has done in 1929!
Please note that I’m still not ruling out a case, in which the S&P 500 Index soars to about 5,300 and tops there, but this scenario is becoming less likely with each passing day.
And given what just happened in tech stocks.
The NASDAQ just clearly (!) invalidated its breakout above the 2021 highs. This is a huge deal, as tech stocks were the most popular and leading ones during the current (previous?) rally.
AI will change the world! Bitcoin is the new dollar! And so on. The new paradigm.
And yes, AI will change the world, but it’s overhyped at the moment in my view. It’s Dot-com bubble 2.0. Just because the AI will change the world, it doesn’t mean that it will all happen now. Sure, some advancements have become immediately useful, but the hype was way too big – just like it was the case with the Internet in general. It did change the world, but the initial rally in tech stocks – and in the stock market in general – was a speculative bubble. Most likely we saw one this time as well.
NASDAQ’s invalidation of the move above the previous highs is a huge deal, because it’s a clear technical sign that “this is it” – this is the top.
This is important for us, precious metals investors and traders, because of the specific link between tech stocks and mining stocks.
If this is the Dot-com bubble 2.0, then what happened in the 1.0 version is likely to apply this time a well – history rhymes, after all.
The decline tech stocks took mining stocks with them. To clarify – they both fell together until tech stocks reached their previous lows, and then miners bottomed while tech stocks continued to slide.
In this case, the previous low is at about 10,000, so it looks like we’re about to see miners fall in a MAJOR way.
NASDAQ fell decisively yesterday, proving that the breakout above the 2021 high is history and confirming my bearish indications from the previous weeks.
This is a major sell signal not just for tech stocks but for all other stock market indices, as the U.S. tech stocks were so important in leading the recent upswing.
It seems that the major tide is here in the case of currencies (USD/YEN!), stocks (tech stocks, broad market), bitcoin, and precious metals. It also seems that junior mining stocks provide an excellent opportunity right now, and I invite you to subscribe and read all key details in my premium Gold Trading Alert (along with trading details). Subscribe today.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief