Gold stocks can tell A LOT about the status of the gold market. And their ratios can sometimes tell even more.
And here’s the ENORMOUS DEAL as far as the precious metals sector’s medium-term outlook is concerned.
Both critical ratios for gold stocks just broke below their multi-year lows!
The gold stocks (HUI Index) to gold ratio just moved below their 2022 low, below their rising, medium-term support line, and it even briefly moved below 0.1!
This is important not just because it’s a huge technical development on its own.
It’s so important because we saw the same thing in early 2013 and that was a reliable and early sign of the upcoming huge slide in the precious metals market. We’re seeing the same signal all over again!
And if that wasn’t enough…
Gold stocks ratio with the general stock market moved below its multi-year lows as well. The ratio between the HUI Index and the S&P 500 index is lowest it’s been in more than 20 years!
Gold stocks are not only ridiculously weak – they are very likely to get much weaker, compared to both: gold and stocks. That’s exactly what the breakdowns mean.
Now, this has no implications for the very near term, but it’s one of those signs that in several months will look obvious and many people will look back and think to themselves “why didn’t I see that”. Unlike 99% of investors, you see it and you can act on it.
The 2000 bottom in the ratio is at about 0.026 and the current value is 0.041. This implies a 37% cut in the values in the ratio. In other words, even if the general stock market doesn’t decline, gold stocks would still be likely to decline by almost 40%.
In case of the GDXJ, this would imply a decline to about $20, which is in perfect tune with one of the targets – based on the 2020 low.
In the short term, of course, the GDXJ could move differently – just because it’s likely to slide in the following months, it doesn’t mean that it will get much lower without periodic corrective rallies.
And if gold price moves higher temporarily, the same fate likely awaits mining stocks…
Gold price moved much lower this week, and yesterday’s run-up didn’t change that much. The point that I made yesterday and that I’d like to emphasize today is that gold often doesn’t bottom in just one day (at least in case of short-term bottoms), but that this bottoming process is… Exactly that – a process that can take several days to complete.
I marked the previous cases with black rectangles. Consequently, it’s quite possible that gold will decline once again and form the bottom at its December 2023 low that coincides with golds 50% Fibonacci retracement based on the 2023 rally.
From the weekly point of view, it’s clear that the medium-term decline is in its very early stage. After extreme weekly reversals, we saw big declines and I marked them on the above chart. The important thing is that those declines didn’t necessarily materialize right away, and that sometimes one had to wait for them.
Now, the decline has been delayed for quite many weeks after the initial huge reversal, but it’s unlikely that it was invalidated.
Gold has been forming lower highs since its 2023 top, and it hasn’t been forming higher lows (this week’s low clarified that). Even though gold could rally shortly, the medium-term implications are bearish.
Thank you for reading today’s free analysis. The full version of the analysis (today’s Gold Trading Alert), on which the above is based includes tens of detailed charts describing the situation in the USD Index, euro, stocks (S&P 500, NASDAQ, world stocks), silver, GDXJ ETF, GDX ETF, XAU Index, HUI Index and more. The analysis is not just comprehensive, it also includes detailed near-term profit-take level for our current trading position in junior mining stocks (which I think offers greatest risk to reward opportunity). Subscribe here.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief