It’s remarkable how some technical techniques work over and over again.
I wrote about it numerous times. In fact, I’ve been writing about it for years.
In many cases, when a given trading tool is generally known, it gets discounted in the price and its stops working as people are able to take positions before the final signal of a technique is given.
But in case of silver’s strength and miners’ weakness, it’s not taking place. Investors are too emotional for that to happen and very few things are more stable than people’s emotionality. That’s precisely why certain price / volume patterns will continue to work almost regardless of the different fundamental situations. That’s also why it makes sense to compare price patterns between periods that are years away from each other.
In the current case, I mean two precious-metals-sector-specific techniques that indicate / confirm that a top is in or about to be in.
One of them is that mining stocks tend to lag and underperform gold around the top. They don’t rally as much as gold does, and then they decline more than gold does.
That’s exactly what happened recently.
The other is the opposite – silver tends to outperform gold on a very short-term basis right before the top – very often also faking a breakout (and fooling those, who try to apply the classic technical analysis rules to the silver market before checking if they actually work there).
That’s also what just happened.
The last few weeks have made it extremely clear.
The GDXJ has been underperforming gold since the September top, and silver just outperformed gold (and faked a breakout) last week.
Today, the GDXJ moved not only below the July low, but also below the August low.
Interestingly, it happened with very little help from gold – the latter declined just a little.
This is most likely the beginning of a much bigger move lower, especially given the record gains in the USD Index that we saw last week.
The USDX soared, and the breakout above the declining resistance line was confirmed. This tells us that what we see is most likely another major wave up – quite likely similar to what we saw when the USD Index rallied from similar levels in mid-2023. The rally was huge, and pauses were rather small and brief.
While the reaction of the precious metals market could be delayed (it seems that it is), it’s likely to slide, anyway. The silver’s and miners’ performance clearly confirm it.
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Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief