Yes, all of them have something to do with gold price and mining stocks…
Before moving to charts, I’d like to reply to the question that is likely in many minds right now:
“PR
Please comment on the Israeli & Iranian conflict and the safety trade in the Swish Franc , Japanese Yen , and USD as well as Gold. Silver reversed today after testing 32.10 and invalidated the rally and Gold remained under 2700. Please give a global view update on the Precious Metals and USD and Equity markets in the current situation. It is a 100% certainty that Israel will most likely make another response militarily again Iran.”
Starting with the last part of the message – if there’s 100% certainty that something will happen, the price has already moved based on it. And… That’s the key thing here. Israel’s tanks entered Lebanon, and… Well, gold moved just a temporarily higher yesterday, and it moved back down today.
To clarify, about half of yesterday’s rally was erased today. The important detail is that gold moved back below the rising support/resistance line, and it failed to move to/above the previous high. DESPITE the increase in geopolitical tensions.
Gold had a good reason to rally strongly but temporarily (as geopolitical events tend to impact prices temporarily). Gold appears to have rallied temporarily but not particularly strongly.
This tells us that gold is most likely already in the “decline mode” and that as the temporary effect of the geopolitical event wears off, gold would be likely to decline more.
Both gold and the USD are viewed as safe-haven assets. Interestingly, while both moved up yesterday, gold moved down today, and the USD moved even higher.
Quoting my previous comments on the USD Index chart:
The USD Index is moving back-and-forth, below and back above the previous lows. It breaks below them and then quickly invalidates the breakdown. The bulls are simply too powerful here to allow for a breakdown.
And you know what? It seems that this is about to end, and a rally is likely to follow.
One of the reasons is USD Index’s tendency to reverse its course close to the turn of the month (or right at it). I marked those turnarounds with vertical, dashed lines. And, well, the turn of the month is upon us.
There’s no doubt that the most recent move in the USD Index was to the downside, so the above tendency is likely to have bullish implications.
Another thing is that a move higher from here would likely lead to a breakout above the USD’s declining resistance line. This is particularly important because of the “three line break” technique.
The latter means that it is the third breakout – above the third resistance line that really matters. As you can see on the above chart – THIS is the third line. So, yes, the implications are likely to be profound.
At the moment of writing these words, the USD Index moved slightly above the third resistance line – perhaps we are witnessing the breakout right now.
Since the precious metals market tends to move in the opposite direction to the direction in which the USD Index is moving, the above is likely to add fuel to the bearish fire in gold, silver, and – perhaps most importantly – mining stocks.
Indeed, that was a breakout when I was writing those words, and today’s rally almost confirms it. Almost, because theoretically, we need three consecutive closes above a certain level to say that the move is confirmed. Practically, with a rally this big, it’s difficult to see a slide that would invalidate this breakout today and/or tomorrow.
The implications of the breakout are bearish for the precious metals sector, and the same goes for the fact that gold – as a safe haven – declined today while the USD Index moved higher.
For some time today, silver was up quite considerably on an immediate-term basis, but it moved back down since that time. It seems that it was once again a sell signal in the form of silver’s very short-term outperformance of gold.
The GDXJ moved lower today as well, and it did so after yesterday’s rally. This might seem like nothing special, but it actually is quite notable.
Remember about the similarity to 2022?
Here’s how the GDXJ started its slide over two years ago.
Two days of declines, then a single-day rebound, and then the decline resumed.
Here’s the current situation.
Two days of declines, then a single-day rebound (yesterday), and then the decline resumed.
The slide is not as big as what we saw in 2022 – yet – but the analogy is intact.
To confirm it, please note that the daily rebound took place when the GDXJ moved close to the previous local highs – that happened in both: 2022 and now.
All those short-term and medium-term indications suggest that the waiting time for the big decline to finally resume (or start – depending on one’s perspective) is quite likely over.
On top of that, let’s not forget that we have critical indications from the stock markets around the world. I previously commented on the epic invalidation in the Japanese stocks.
NIKKEI moved back above its previous all-time high, and then it moved back below it. Despite a small move back up, it then moved lower once again, suggesting that a decline is really in the cards now.
Today, I’d like to show you a different stock market that also flashed a major sell signal.
The Hang Seng Index measures the performance of stocks listed on the Hong Kong Stock Exchange, and it just did something that previously marked major tops.
Namely, it soared in huge volume. I marked similar cases, and they all (at least in the previous 12 years) marked key tops in the market. To clarify, there were more cases when the index moved on huge volume, but only ones where the volume accompanied big rallies are analogous to the current situation.
Also, this index moved to its previous medium-term top, most likely meaning that the rally is over.
Remember that the worst-performing markets and sectors are faking strength in the final parts of a rally? The HIS has been very weak since 2021, and it moved sharply higher just recently – along with copper – which is another weak market. All those markets’ indications confirm each other.
I marked those moments (approximately) with vertical, dashed, blue lines. In each of the three cases, it was before gold and silver mining stocks declined substantially.
The 2020 case is not clear on the above chart (that was the sharp Covid/lockdown-scare-based slide), but the indication from the HSI came before the slide.
So, yes, we have strong – this is it – warning signs also from HSI and NIKKEI indices. It doesn’t seem to be a good idea to ignore them.
If you’ve been waiting patiently for the move lower to take place – it seems that your patience is about to get rewarded in a big way.
If you’ve been waiting on the sidelines for more confirmations OR you previously closed your position and are wondering what kind of position to open – THIS IS IT – this is the confirmation that the big moves have likely just started. Of course, that’s just my general opinion, not investment advice aimed at anyone in particular.
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Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief