Making gold price predictions is not an easy feat, but every now and then, we get blessed with a clear signal. And we saw one in July 2023.
It’s visible on the monthly chart that features not only the key parts of the precious metals sector (gold price, silver price, mining stock prices) but also one of the key gold price’s drivers – the USD Index.
To be precise, I used the GLD, SLV, and GDXJ as proxies for the metals and miners, thanks to which we have an apples-to-apples comparison between the parts of the precious metals sector.
Gold price pretty much corrected its June decline during July. The same thing happened in mining stocks, and… That’s a bearish sign.
How come? Because mining stocks are… Stocks and since the general stock market moved higher last month, it gave the former an extra boost.
A boost that wasn’t used.
This suggests that it’s not the direction in which gold, silver, and miners really want to go.
What else can you see on the above chart? For example, the fact that silver has more than erased its June decline in July, thus outperforming gold. That might seem bullish until you factor in silver’s tendency to do exactly that before bigger declines. So, that’s actually a bearish sign.
One other thing that is notable in the above chart is that the clearest downside trend is visible in the junior mining stocks. The subsequent highs are clearly lower. Again, that’s despite higher general stock market values, which is very bearish for the junior miners.
And all of that was not the key analytical gift that we received last month that would help us forecast the gold price in August.
That gift arrived in the form of the truly profound monthly reversal in the USD Index.
Reversals are important.
Weekly reversals are more important than daily ones, and monthly are more important than weekly ones.
Invalidations of previous breakdowns are important, too.
We saw all of them in the USDX!
This is the key development that is not being talked about enough! The nominal rates are still going higher, and people are likely to expect lower inflation in the future. This means that real rates are likely to move higher once again.
The real interest rates and the USD Index are the two key fundamental drivers for gold prices, and both are inversely related to it.
The above means that gold is likely to decline profoundly in the following months – most likely also in August.
Dollars Indication for Gold Forecast
The USD Index is also up in today’s pre-market trading, which means that it’s moving above its mid-June lows. That’s another step toward much higher values, but so far, a small one.
Let’s not forget that the monthly reversal is a powerful indication – not something to trigger just a 1-2 index point rally, but likely something much bigger.
Also, let’s zoom in on gold and silver and get back to the issue of silver’s short-term outperformance of the yellow metal.
Silver jumped up well above Friday’s intraday high, while the gold rally was more measured. And today, gold declined more (relatively speaking) than silver.
Silver is strong compared to gold, which doesn’t bode well for the near-term prediction for neither gold price nor silver price.
Gold Price, Gold Stocks and Other Stocks
Here’s what’s the GDXJ – a proxy for junior mining stocks – is doing today in its London trading.
It moved lower after touching its declining, short-term resistance line. Yesterday’s move up didn’t change even the short-term trend. The outlook remains bearish for the short term, and it’s also profoundly bearish for the medium term, for example (there are many other factors that go beyond the scope of this analysis, and I discussed many of them in Friday’s extensive Gold Trading Alert) due to USD Index’s powerful reversal.
Earlier today, I mentioned that stock prices can impact mining stock prices, and we’re seeing bearish indications on that front as well. Of course, a decline in stocks is not needed for miners to decline (GDXJ is lower than it was in April even though the S&P 500 is much higher), but it would add fuel to the bearish fire.
As you can see on the above chart, stocks are after a major daily reversal and are simply hesitating to decline right now.
It might look like the reversal didn’t matter and that stocks are continuing to move up, but zooming in shows that this is not the case.
As you can see on the above 4-hour chart, the very recent move higher was another attempt to break above the mid-July high. And this attempt was just invalidated.
Will we see another move lower soon? Nobody can guarantee this (or anything else on any market), but that does seem likely.
And given that miners have chosen to more or less ignore stocks’ strength, they are likely to react profoundly to stocks’ weakness by multiplying their declines in a massive way.
It means that the forecasting lower prices of gold in August are more than justified. In fact, the huge profits that we recently reaped in the FCX recently are likely to be joined by massive profits from the current short positions in the junior mining stocks and in the FCX.
Thank you for reading our free analysis today. Please note that the above is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim targets for gold and mining stocks that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.
Sincerely,
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief