Another day, another rhyme. Even yesterday’s rebound in gold stocks was just like what we saw in 2008. And that’s just one of the confirmations.
I wrote about it in yesterday’s Gold Trading Alert #2, and I provided an extra follow-up in the comments section, but in order to keep it all in one place, here it is again:
Meanwhile, gold stocks are moving higher, as well, but… they are moving higher pretty much like they did in 2008.
The HUI Index just moved a bit above the 61.8% Fibonacci retracement based on the initial downswing, and then it declined again, closing the day visibly below it.
Back in 2008, the HUI Index corrected 61.8% of the initial decline.
This time the moves were quicker, so it’s no wonder that they were bigger (on an intraday basis) – quicker moves are more emotional.
So, while this volatility might appear to be a game-changer, it most likely isn’t. It didn’t invalidate the bearish link with 2008.
The extremely favorable bearish potential of the current situation in junior mining stocks remains intact.
The additional implication here is that the next several days can be quite similar – we could see back-and-forth movement, but this is most likely just the early part of a really huge move that is likely to accelerate as the time passes.
Another thing that I discussed in yesterday’s intraday Gold Trading Alert was the relative performance of gold, silver, and mining stocks. Let’s take a closer look.
Silver is clearly outperforming gold on an immediate-term basis, which is the perfect cherry on the bearish cake.
Junior miners attempted to rally above their recent high yesterday, and they failed. This shows that it’s likely the final part of the upswing. The worst performer – junior mining stock sector – is catching up as it was “cheapest.” It’s likely being bought by those who don’t care if it was cheap for a reason. But I already wrote about it yesterday.
Based on the link to 2008, we can see some back-and-forth movement in the GDXJ in the following days as well, but that’s not really important because the ultimate follow-up action is likely to take the juniors MUCH lower. And I don’t mean just erasing the March rally. I mean moving to, and then below, the 2022 lows.
To put it into perspective, let’s zoom out.
The short-term downside target is at about $26, so entering the short position above $35 is likely to prove very beneficial in the near future, in my view.
The move above it was, well, small. Gold moved up visibly, it was all accompanied by panic due to the situation in the banking system, but the reality is that junior miners didn’t move up substantially. They only briefly corrected 61.8% of their 2023 downswing, which is a relatively normal technical phenomenon.
So, what’s next in store, given the link to 2008?
Gold might move sideways in a rather volatile manner; however, gold stocks (including juniors) have probably already topped.
The stock market has also likely formed a local top, and it can now decline. At first, it would be likely to decline in a measured way, and then to slide – pretty much like the miners.
The USD Index has probably either bottomed or is very close to bottoming.
Please take a look at the RSI – it just jumped above 50 for the second time after the major top. The same thing happened in September, 2022. And what happened next? Stocks plunged!
So, if history is be similar to a smaller extent to 2008 and to a bigger extent to 2022, stocks might slide right away, or very soon.
When that happens, miners – and especially junior miners – would be likely to follow.
This means that we might (as I wrote above) or might not have a measured decline in juniors, and we might have a more volatile drop soon.
Which one will it be? I’m not sure, and I don’t care that much, because the position that we have is likely to become extremely profitable (in my view) in the following weeks, regardless of which of the above scenarios plays out.
As far as the USD Index is concerned, the long-term chart continues to point to a similarity with what happened in 2008.
If you look at what happened in mid-2008 – before the near-vertical rally – you’ll see that the back-and-forth movement at the bottom was normal. There was not a single bottom, but a few of them. So, seeing a quick decline here, doesn’t make the current picture bullish.
In fact, if you look at the RSI indicator, you’ll see that the final small decline that led to the final bottom started with the RSI at about 50.
That’s exactly the level that was just hit, before USD’s recent short-term decline.
And when did that final short-term decline end in 2008? Above the previous lows, when RSI moved to… the levels that it’s at right now.
Yes, the situation is bullish for the USDX, even though it doesn’t seem like it based on what’s going on in the world. The sentiment was very similar back in 2008, and we all know what happened next.
The outlook for junior mining stocks remains extremely bearish, and the profit potential for our short positions remains enormous.
Stay strong.
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Sincerely,
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief