Miners declined. Remember how I wrote how the bearish case for the miners was stronger than the one in gold?
We just saw another confirmation.
Gold moved higher yesterday, and gold mining stocks moved lower. It might not make sense until you factor in the current geopolitical tensions in the Middle East – gold serves as a safe-haven asset while gold stocks don’t.
This means that my yesterday’s comments remain up-to-date:
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 – ended yesterday’s session over 1% lower even though the GLD ETF ended it 1.87% higher – which corresponded to about $40 rally in gold. Silver was up yesterday, but it’s down by over 1.2% in today’s pre-market trading (the same is the case with the GDXJ).
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.
Once again, junior miners declined – this time by 1.76%.
What’s really important about yesterday’s decline in junior miners (in addition to the fact that they underperformed both gold and stocks) is that they moved back below their declining blue support/resistance line. They ended the session pretty much at this line, but since this line was based on the intraday highs, then I’d say that an invalidation in intraday terms is a bearish development.
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.
In this case, the GDXJ moved back below the 2023 high, and what we saw was not a daily rally, but just an intraday one, while the GDXJ still ended the day in the red. So, as I wrote earlier, this was perfectly normal.
On Friday, we saw the epic reversal in gold, silver, and miners, and this week, the key action is taking place in stocks. I already wrote about it previously, but it deserves to be quoted once again, as it’s so critical.
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.
Seems similar? Because it should.
Stocks recently (about two weeks ago, so about six weeks after I quoted the above) topped close to the turn of the month, and then they declined in a back-and-forth manner in the first half of the month.
And guess what they just did this week? Stocks’ decline accelerated – just like what it has done in 1929!
Yesterday and in today’s pre-market trading, the S&P 500 futures are flat, which can be viewed as a verification of the move below the declining trend channel.
When stocks decline a bit more, they will erase their entire March rally – some said that stocks could only move up now, and it appears that it’s not the case. What is much more likely the case is that the history is rhyming, and after a period of extreme strength and greed, comes a period of declines, perhaps extreme declines.
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 did very little yesterday, but this is actually bearish, because when the index previously (in the recent weeks) moved lower, this move was then immediately followed by a comeback.
This did not happen this time, which suggests that this time, tech stocks are really ready to fall.
Perhaps it will be the bitcoin disappointment that triggers the fall.
The momentum is gone, the breakouts above the 2021 highs are invalidated, and this popular USD alternative is declining while the USD itself is rallying.
Interestingly, this is the time when people are expecting bitcoin’s halving to trigger a rally as that’s what’s been taking place in each case that it happened.
In my opinion, this argument is very weak. The truth is that bitcoin was in a long-term uptrend, and pretty much wherever you’d put any type of cyclical measure, it would show you that over the medium run, the price moved up.
And now, everyone and their brother (at least in the circles that are interested in cryptocurrencies) are expecting bitcoin to rally once again as the halving is likely to take place this Friday.
You know what happens when everyone interested in a given market expect some kind of event to trigger a substantial rally? They buy BEFORE that event takes place. And what – in this case – happens once the event does indeed finally take place? Since everyone interested had already bought, at that moment, the price… falls, despite the fundamental reasoning.
Sounds crazy?
That’s exactly what happened when the SLV ETF was launched. Remember what people were saying many years ago when this ETF was about to be launched? Silver was already rallying in expectation of this event that would make silver available to wider public, huge amounts of investment capital were supposed to drive the price of silver to the moon. Triple digit silver was a sure bet.
What happened?
Silver rallied in the immediate aftermath of the SLV ETF being launched and then it plunged - erasing 1/3 of its value.
The EXPECTATIONS of the launch have driven the price of silver higher, but when that finally took place, the rally was erased.
So, will bitcoin halving really drive its price higher in a sustainable way, just as it is widely expected? Nope.
With rallying USD and declining… Stocks, bitcoin, and many other assets, will gold, silver and mining stocks really hold ground? The history and analogies to 2008 and 2020 suggest otherwise. Precious metals and miners are likely to slide along with stocks as the USD rallies, at least initially (in terms of weeks/months). Then, as stocks continue to move lower, PMs and miners are likely to start a massive rally. The current rally in gold is likely over and what we see now are likely just temporary, geopolitically driven upswings that are likely to be followed by bigger declines, just like what we saw after powerful reversals that formed on huge volume levels.
Is this time really different? Those are expensive words on the market. What is much more likely is that the history is rhyming once again. Let’s profit on it.
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.
I previously wrote the below as the most likely scenario going forward:
What’s the most likely scenario going forward? Gold price continues to rally to new highs, we close the long position cashing profits, and then gold and miners both slide and we end up cashing in profits from the short position in junior miners as well. In the meantime FCX falls, and we cash those profits too.
The first part is done – we closed the long positions, cashing in profits. Now, gold, miners (and FCX) are likely to slide – either immediately, or shortly.
Junior miners are likely to slide profoundly here – if you’ve been on the sidelines, waiting for some kind of confirmation that it’s good to enter the short position in junior miners or to add to the existing short position – this is it.
As always, I’ll keep my subscribers updated.
Again, I think that junior mining stocks offer a much better shorting opportunity than gold, so if that’s something you can do or are considering to do, I suggest getting details from my Gold Trading Alerts.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief