Aaand We Have Another Invalidation in Gold – Just as Expected
I don’t want to go all I-told-you, but I told you. Gold’s rally was suspicious, and indeed, it was just invalidated.
Gold futures just closed at $1,994.30. The invalidation is a sell signal, and it further reinforces the bearish outlook for gold.
The “silver signal” that I outlined yesterday (silver’s short-term outperformance right before declines) worked once again.
Silver moved lower by almost 2% yesterday, making it clear that Monday’s upswing was an early trick and not a treat.
Of course, junior mining stocks declined as well – more than silver and gold did. And profits on our short position in the GDXJ increased as a result.
On a very short-term basis, something very interesting happened in this ETF. Namely, its price created a head-and-shoulders pattern that is about to be completed.
The earl-October top is the left shoulder, the mid-October top is the head, and the very recent top is the right shoulder. The target based on this pattern is below $31 – close to the October lows, as the move that follows the breakdown below the neck level is likely to be similar to the size of the head.
Consequently, juniors are likely to slide to their recent lows, then perhaps pause for a short while, and then slide more – probably much more.
The situation in the USD Index continues to support this outcome as well.
The U.S. currency is behaving similarly to what it did in mid-2022, right before it moved to its 50-day moving average when the RSI moved temporarily below 50 (marked with green arrows).
Back then, there was some back-and-forth trading before the USDX soared once again, and we just saw the same thing recently. As the similarity remains intact, the implications remain bullish. And as the correlation between the USDX and the precious metals sector is negative, the above has bearish implications for gold, silver, and mining stocks.
In other words, it seems that profits on our short positions in junior mining stocks will become even more profitable in the not-too-distant future. On a side note, our profits from the short position in the FCX increased yesterday as well.
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Przemyslaw K. Radomski, CFA