Gold and gold miners moved higher yesterday, turned a few heads, and now they’re back down. What’s next?
Yesterday might have seemed like a big deal, but… If you read my weekend Gold Trading Alert, you knew that seeing a double-top here was one of the possibilities that would NOT change the outlook. After all that’s how gold topped in 2011.
The reason that I had sent that report was to prepare my subscribers for the situation in which we get one final move up.
The move up that we saw was not that huge, but it was present. Gold moved above its declining resistance line, and it then failed to hold above it. The invalidation is a bearish factor, and the fact that gold rallied in the first place is not a bullish factor as it’s in tune with the gold 2011 topping pattern.
Some might be concerned with the fact that junior miners moved higher – even above their recent high, so let’s take a look at the details.
The GDXJ moved above its 61.8% Fibonacci retracement one more time, and it even moved above the mid-January highs. It already invalidated the breakout above those highs, and it’s now close to the retracement. Invalidation of the move to new highs is a sign that the rally is over.
While it’s true that junior miners showed relative strength vs. gold right now, this is what could be the fake “strength” – just like fake weakness was what confirmed the early-2016 bottom.
The thing is that miners’ strength – as a bullish indicator – should be seen at the beginning of the move up and at the end of the preceding decline. We’re now not before the rally but after two weeks of the rally. Therefore, the interpretation of the said strength is not as straightforward. And given gold’s inability to hold above $2,200, it seems that the top is already in.
The most bearish thing about this week’s price moves is that they are very similar to what we saw at the late-2023 top.
The previous big short-term rally ended when the GDXJ moved a bit above the previous highs and then formed a double-top pattern. This is exactly what we see right now.
How can something that preceded an almost $10 decline in the GDXJ be something bullish?
Let’s keep in mind that from the broader point of view, the move higher in the GDXJ is pretty much in tune with other corrective upswings – nothing more.
Let’s keep in mind that gold miners’ recent rally is very much in tune with previous corrections that we saw before the final bottoms. I marked the previous rallies with blue lines, and what we saw recently was only slightly bigger.
The most important thing about the above is what is not written. It was only slightly bigger despite a move to new all-time highs in gold! Miners are remarkably weak here and this is a huge, flashing, red light that one should NOT ignore.
The situation in the USD Index and stocks supports a move lower in the miners as well.
After taking a breather, the U.S. dollar index is up once again, and it’s now clear that last week’s reversal was not accidental. The USDX is indeed moving higher here, so the move in the precious metals market is likely to be to the downside.
The important thing that we see in the S&P 500 Index is that it broke below the rising support line, then moved back to this line, reversed, and then tried to rally back above this line one more time – without success.
Remember – when laggards catch up if often means that the market is topping. Junior miners were definitely one of the weakest sectors and they are now catching up – the implications could extend beyond the precious metals market – it could be a sign of a top in the broad market as well.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief