Soaring Dollar’s and Declining Copper’s Message to Gold Investors

Gold is declining as the USD Index continues to soar. But there’s more – likely much more.

I previously wrote that the precious metals sector was due to a bigger decline, while the USD Index was about to soar, and those moves are now indeed taking place. While I was quite often supporting the above with a short-term chart, I don’t want anyone to think that those short-term charts or short-term price developments are the key reasons for those moves.

No. The key reasons are present in the long-term charts, and in today’s free article, I’ll provide two such charts. I’ll also discuss the GDXJ to GDX chart to show you why, in my opinion, the junior miners are a better asset for one to be shorting now than senior miners.

I previously commented on the long-term situation in the USD Index, and I’d like to take this opportunity to re-state one of the key facts.

A graph with blue and red linesDescription automatically generated

Namely, the open interest (pink line) is still very low despite the move up in the USDX. This means that people have yet to jump on the bullish bandwagon – what we saw so far is to a large extent driven by closing of the short positions.

This leaves plenty of room for more gains in the U.S. currency. This rally is only big when we look at it from the day-to-day point of view. When looking at it from the long-term point of view, it’s clear that it has only begun.

The same goes for the copper’s decline.

A screenshot of a graphDescription automatically generated

Remember how I warned about copper’s likelihood of forming a major long-term top in May when it was “breaking out”. I wrote that the breakout should not be trusted as copper tended to form major tops in May. Indeed, that was another major top.

What we saw then was the initial slide (no wonder, invalidations are sell signals), then a corrective rally and now we see the decline’s continuation.

That’s nothing new – we saw something very similar in 2008, 2011, and in 2020. I marked those cases with orange arrows. The declines that followed were huge – not just in copper, but in gold, silver, and mining stocks as well.

Interestingly, a decline in the general stock market was not necessary for the above to play out. After the 2011 top in commodities, the general stock market continued to move higher, but precious metals declined anyway, while the USD Index soared.

Stocks are overvalued, and they could slide, but this is not needed for the decline in gold, silver, and mining stocks to continue.

Looking at the GDXJ to GDX ratio provides us with additional interesting details.

A graph of stock marketDescription automatically generated

The ratio between both ETFs shows when and by how much juniors under- (or over-) perform senior mining stocks.

The first important detail is that there’s a long-term downtrend in the ratio, meaning that juniors tend to underperform seniors over time – at least that’s been the case in the past four years.

The second important detail is that whenever we see a decline in the stock market (black line at the bottom of the chart), then the ratio declines particularly visibly.

The third detail is that if there’s no major decline in the stock market (including times when the stock market rallies), the ratio itself moves mostly sideways. Please consider the entire 2023-2024 performance – the S&P 500 moved considerably higher, but the ratio continued to trade sideways.

What does it mean? It means that we have the following situation:

  1. Stocks up: not necessarily any action in the relative strength of junior mining stocks.
  2. Stocks down: underperformance of junior mining stocks.

Consequently, in my view, favoring junior mining stocks over senior miners during this decline simply makes sense.

Before summarizing, I’d like to comment on the current economic situation. Right now, the stock market is soaring amid the Trump-victory optimism, however, it seems that the market still needs to digest some of the implications.

Quoting from Yahoo!Finance:

But there was one aspect of Trump’s return to the White House that he was willing to leave as a mystery: How Trump’s proposed economic policies might affect the Fed’s expectations for a series of additional rate cuts in 2025.

“There is nothing to model right now,” Powell told reporters last Thursday, after the Fed announced its second rate cut in seven weeks.

Economists say Trump’s combination of proposed across-the board tariffs, tax cuts and mass deportations of undocumented immigrants would put new pressure on inflation and balloon the deficit, all of which will make it more challenging for the Fed to cut rates.

A surge in Treasury yields that followed Trump’s election last week could also cause complications if it continues into next year.

Many economists are already scaling back their expectations for the number and pace of rate cuts next year on account of these proposed policies from a new Trump administration.

That’s right – the rate-cut scenarios that the market was hoping to get might not necessarily materialize. And while the market’s focus might be on things that are currently positive for the stock market, the above might get into the spotlight sooner rather than later.

The same goes for the likely impact of tariffs. Tariffs are bad for trade. Trade is important for the economy, and profits of many companies rely on it – that’s what students learn in the very first year of any college education focused on finance or economics. At least I did.

This might not be obvious to everyone at this point, and even if it is, then the spotlight is on other issues as optimism seems to be blooming. This doesn’t make the above issues any less important, though.

Note: I’m not saying that placing any or some tariffs is essentially a bad idea; some might be justified based on non-economic reasons. However, from a purely economic standpoint, they are not beneficial.

If stocks are getting ahead of themselves here and if the S&P 500 Index’s invalidation of the move above 6,000 is the ultimate sell signal, then junior miners are very likely to truly slide. If not, and stocks continue to move higher, then junior miners are still likely to decline, just not necessarily in a spectacular manner.


Thank you for reading today’s free analysis. It’s full version – the Gold Trading Alert – includes also the short-term details that traders would find particularly useful. I encourage you to subscribe with a 16-day free trial. Alternatively, if you’re not ready to subscribe yet, I encourage you to sign up for my free gold newsletter today.

Thank you.

Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief