The week is over, and the results are in! Gold price formed a weekly shooting star reversal candlestick, which is a powerful bearish confirmation.
Gold price formed a weekly shooting star reversal candlestick, which is a powerful bearish confirmation.
And that, my friends, is the key thing that happened based on the entire week’s price/volume data.
Volume – yes – is also an important part of the equation. If the volume is high, it suggests that one side of the market overpowered the other. In this case, the bears overpowered the bulls. Yes, gold ended the week higher, but:
- It wasn’t a new yearly high in terms of the weekly closing prices.
- The vast majority of the early week’s rally was erased, so the vast majority of bulls was overpowered, so the above still holds true, in general.
The weekly volume was indeed high, in both: nominal and relative terms.
Seeing a weekly shooting star after an emotional rally that is confirmed by big volume is extremely bearish on its own, but the strength of the bearish indication doesn’t end there.
We also have the analogy to last year’s top.
That’s right – that’s exactly how gold topped last year. We saw a weekly reversal that formed on big volume. In my opinion, this is an awesome opportunity for one to establish a short position in the precious metals sector – if one doesn’t have it yet.
And yes, I continue to think that junior mining stocks will decline the most, so that’s where I think the position is most justified from the risk-to-reward point of view.
- But junior miners didn’t plunge on Friday! Aren’t they strong? Isn’t that bullish?
Not really. Let’s take a look at the chart.
Unlike gold, juniors are now just slightly above their January 2023 high, so they are showing weakness to gold overall.
Most importantly, though, they have a very good – and temporary! – reason to rally on Friday.
Namely, the stock market moved sharply higher.
You see, the thing is that the move higher in stocks is a normal part of a regular back-and-forth pattern, which is not bullish at all. Conversely, it’s very bearish.
What we’ve been seeing in the past several months (since October 2022) is most likely a sizable head-and-shoulders pattern in the making. The fact that the S&P 500 was unable to break to new 2023 highs recently, solidifies that.
Now, those patterns tend to be symmetrical, and the left shoulders that formed in November and December, 2022 was created by multiple small tops and back-and-forth movement.
This means that seeing back-and-forth movement right now is not only normal but actually bearish, because it implies that the formation is being continued, and the formation itself is bearish. The formation – once completed – will point to the 2022 lows as being the next target.
This, in turn, means that the impact that stocks are going to have on the junior mining stock sector (and silver price, too) is likely to become very negative in the not-too-distant future.
Moreover, let’s keep in mind the analogy to 2008 and the potential (likely) problems in the banking sector. How is the precious metals sector likely to react in such an environment? Just how it reacted in 2008 – with a big decline, that is then followed by a big recovery. The big decline was most prominent in the case of silver and mining stocks (in particular, juniors!), so I expect the same to be the case this time.
So, gold is likely to fall, i.a. based on the weekly reversal and multiple other factors that I mentioned in Friday’s flagship analysis. And junior miners are likely to fall much more, i.a. because of the situation in the stock market and based on other factors that I mentioned in Friday’s flagship analysis.
Stay tuned!
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Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief