How can you tell that the tide has turned for the mining stocks? Simple, look at how they perform relative to gold.
After a brief period of strength, miners’ are back in their decline mode, and it’s apparent when you compare what is happening in them with what’s happening in gold. Or when you just look at the weekly price moves.
Last week gold (GLD) moved higher by 1.95%. At the same time, the GDXJ not only did NOT rally at all – it actually declined by 0.26%. And it can’t be explained by the weak performance of the stock market. Stocks (SPY) rallied by 1.64% last week.
Whatever happens, miners slide or pause.
Take Friday. Gold moved higher, as it’s still consolidating below its 50-day moving average, preparing for another big move lower.
Some back-and-forth movement here is normal, and it’s in perfect tune with what we saw in 2011 after a very similar double-top pattern.
The fact that gold verified its breakdown below its 50-day moving average suggests that it’s close to the vertical decline that we saw in late September 2011. Of course, this time, the decline could be less sharp, but I wouldn’t bet on it being steady, either. What took a few days then could take a week now, but this wouldn’t change much in the grand scheme of things.
Moving back to mining stocks, while gold ended last week close to its June 12 high, nothing like that happened in the junior miners.
Junior miners were barely affected by gold’s daily gains – they simply paused.
That’s very telling, as the GDXJ had a good technical reason to rally – it reached the 38.2% Fibonacci retracement based on the March – May rally. It could have easily launched a notable corrective upswing or even a rally. It didn’t – the move is not visible on the daily chart, and it’s barely noticeable even on the hourly chart.
And the GDXJ is already down in today’s pre-market trading by about as much as it “rallied” on Friday.
So, yes, as junior miners are not responding to positive news but are reacting to negative news, they are likely to decline more.
And since the USD Index is moving higher after invalidating two attempts to break below its rising support line, it seems that the decline in the miners (as well as in gold) is going to accelerate any day (or hour) now.
Before summarizing, please take a look at the ratio between GDXJ (juniors and mid-tier miners) and GDX (senior miners).
The ratio was just very overbought (note RSI at 70), and I described that as being as sell signal. Indeed, gold, silver, and miners have been moving lower since that time.
Please note that this ratio has been in a downtrend since 2021 and the recent upturn was just a correction. Given that the ratio is declining along with miners right now, and that miners are so weak relative to both: gold and stocks, it seems that the ratio is also going to fall much more in the following months. This further emphasizes how great an opportunity declining mining stocks provide. I can’t promise any kind of return (nor can anyone in this business), in my opinion, shorting them or buying inverse instruments (be careful) is likely to prove very lucrative in the following weeks and months.
As always, I’ll keep my subscribers informed.
If you’d like to join my premium subscribers, I encourage you to do so today, while the big part of the profitable decline is still ahead. And if you’re looking for a buy signal for gold, it might appear soon, and as my subscribers, I’ll keep you informed, also through intraday Gold Trading Alerts, whenever required. Sign up today.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief