Gold and Gold Miners Don’t Care Anymore – But You Should
The USD Index declined significantly in today’s pre-market trading, and yet gold barely moved. This means that something’s up – something important.
Let’s take a look at what’s happening in the USD Index.
The USDX moved sharply lower – to new monthly lows. And yet, it’s not something that changes the outlook.
On Friday, I wrote the following:
Two things that I’d like to add today is that the USD Index is forming a flag pattern, which might imply another very brief move to the downside, but that’s not the really important thing about it. The key thing is that the rally that is likely to follow the flag is likely to be similar to the one that preceded it.
The USD Index didn’t move below the lower border of the flag pattern, so it remains intact, and so do the bullish implications.
The fact that the USDX moved below its 38.2% Fibonacci retracement is not a game-changer either because we didn’t even see a daily close below that level. It’s quite possible that the USDX will reverse before the end of today’s U.S. session and end the day back above this retracement.
So, there’s nothing remarkable about today’s pre-market move lower in the value of the U.S. currency. Conversely, gold’s and silver’s weak reaction to this move lower is remarkable.
Normally, when the USDX is down, the prices of gold and silver “should” rally. After all, this is the currency both precious metals are priced in. And yet, when the precious metals market really wants to move in the opposite direction, it ignores even this “obvious” indication.
The really remarkable thing about this relative performance (lack thereof) is that it’s a confirmation of what we have already been seeing in the previous days.
It’s not only the case that gold is largely ignoring what the USD Index is doing.
In reality, we’re seeing practically every relative-performance-based indication that’s important for the precious metals sector!
- Silver outperformed gold on a short-term basis – check. I marked it on the chart with the gray rectangle.
- Mining stocks underperform gold – check. The GLD closed the week close to its last week’s high, whereas the GDXJ closed the week close to its last week’s low.
- Mining stocks were driven by higher stock market values but are currently ignoring the rallies in the latter, too. Double check – I marked that with the red rectangle.
All the above tend to happen before bigger declines in gold, silver, and mining stocks.
And the cherry on the bearish cake?
The reversal in the S&P 500, where the latter failed to move to its critical resistance level.
The intraday reversal combined with a very high reading in the RSI indicator is a very bearish combination on its own. But it is the level at which the reversal took place that makes it so special.
That was the 61.8% Fibonacci retracement based on the entire 2022 decline and the mid-2022 high at the same time.
This resistance was very likely to hold, and that’s exactly what happened. The shape of the session indicates that the rally is over and if not, that we are in the “pennies to the upside, tens of dollars to the downside” territory.
So, we’re in a situation where we have the precious metals sector flashing all important valuation-based signals, and at the same time, it seems that both: USD Index and the stock market are about to reverse and continue their previous moves (USD up, stocks down). Given that PMs “just can’t wait” and already showing weakness (except silver, but I already wrote about it), it looks like we’re going to see a huge reaction and a massive decline in them once stocks and USDX resume their previous trends. And it seems that it’s about to happen any day now.
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PS. To clarify some confusion and misleading information that you might find “out there” (probably spread by those that are not analyzing the precious metals market but that rather cheerleading it) regarding my profitability and the kind of positions that I’m opening in my Gold Trading Alerts (both: long and short), here’s a complete (!) list of trades that I featured since 2022.
“A trade” means that it was completed, I am not featuring the currently open positions (we have two: in GDXJ and FCX), but details of those positions are available to Gold Trading Alert subscribers.
Whenever discussing profits, I mean the nominal profits based on the basic, unleveraged instrument, like GDXJ and FCX); selection of instruments is not something I’m accountable for, and each investor determines it on their own, thus I’m not responsible for using options, leveraged instruments like futures / leveraged ETFs etc., and the way it might affect the rate of return.
Yes, all eight out of eight were profitable. And while I can’t promise any kind of performance of the current positions (nor any other), in my opinion, their potential is enormous.
Here’s the complete (!) list in inverse chronological order (please click the links for the actual analyses in which I described when the profits were taken; feel free to verify hours at which it was posted and where markets were trading at those times):
1. On May 25, 2023 we took profits from the short position in the FCX (practically right at the bottom; opened on Apr. 5, 2023).
2. On Mar. 17, 2023 we took profits from the short position in the FCX (almost right at the bottom; opened on Mar. 8, 2023).
3. On Mar. 1, 2023 we took profits from the LONG position in the GDXJ (very close to the local bottom; after the “easy part” of the rally).
4. On Feb. 24, 2023 we took profits from the short position in the GDXJ (almost right at the bottom; and that’s where I wrote about the long position from point 3).
5. On Jul. 28, 2022 we took profits from the LONG position in the GDXJ (entered on Jul. 11, 2022; we were buying around and very close to the bottom).
6. On Jul. 8, 2022 we took profits from the short position in the GDXJ (very close to the bottom).
7. On May 26, 2022 we took profits from the LONG position in the GDXJ (very close to the top; just several days before the top).
8. On May 12, 2022 we took profits from the short position in the GDXJ (that was exactly the monthly low and reversal; and that’s where I wrote about the long position from point 7).
Przemyslaw K. Radomski, CFA