Gold stocks tend to lead gold, both up and down. Are they really leading gold higher right now?
Or are they… doing something else?
Junior miners moved above their 50% Fibonacci retracement based on the 2022 decline, but the GDXJ ETF did not move to its 61.8% Fibonacci retracement.
- Well, so? What’s so special about it?
Everything!
That's exactly how high this junior miners ETF corrected in mid-2021 and 2022 before the decline resumed, and the slide was bigger in the second case. That's intriguing because it's possible that because the correction is now based on a larger decline, the subsequent plunge will be — once again — larger.
Getting back to the original observation, the two declines that were corrected in the above-mentioned way started at the same top – the 2020 high.
The first correction that I marked with red Fibonacci retracement levels started from the early-2021 bottom.
Gold stocks corrected more than half of the decline (not more than 61.8% thereof), the RSI moved close to 70, and there was a final, irrational pop-up in prices. That was the top. I marked it with an orange rectangle.
The second correction that I marked with blue Fibonacci retracement levels started from the early-2022 bottom.
Gold stocks corrected more than half of the decline (but not more than 61.8% thereof), the RSI moved close to 70, and there was a final, irrational pop-up in prices, and that was the (2022) top. I marked it with a red rectangle.
What do we see now? The decline that is being corrected started in 2022, and the corrective upswing started in the final part of 2022.
Gold stocks corrected more than half of the decline (not more than 61.8% thereof), the RSI moved close to 70, and there was a final, irrational pop-up in prices. I copied both of the above-mentioned rectangles to the current situation, and it’s obvious that there’s also a similarity in terms of indicators.
In the first analogy, the similarity is in the RSI indicator (upper part of the chart), and in the second analogy, the similarity is in the MACD indicator (lower part of the chart).
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief