Juniors Take the Lead – Will Gold Price Follow?

The USDX was first to invalidate its recent move lower, and now miners joined in, invalidating their breakout. Is gold next?

Most likely yes.

Let’s start today’s analysis with the USD Index.

Juniors Take the Lead – Will Gold Price Follow? - Image 1

Practically, everything that I wrote about USD Index’s bullish potential remains up-to-date, and based on how clear the recent invalidation of the breakdown was, it seems that the next move higher is already higher.

Now, as the USD Index is moving higher, gold is likely to move lower – they have been moving in a mirror-like fashion for about a year now. To clarify – during the last year, the correlation was particularly negative, but in general, gold moves in the opposite direction to the USDX, as it’s priced in U.S. dollars.

Juniors Take the Lead – Will Gold Price Follow? - Image 2

Gold, however, moved back below the $2,000 level only on the intraday basis yesterday. It closed the day above that level. Is it bullish?

No, it’s not.

Yesterday’s move higher in the USD Index was tiny, so it’s no wonder that gold didn’t decline more – and a $12 decline is not that small either.

Besides, let’s keep in mind that gold stocks tend to lead gold, and here’s what happened in the GDXJ yesterday.

Juniors Take the Lead – Will Gold Price Follow? - Image 3

It moved lower by almost 2%, even though the indications from the USD Index and the S&P 500 (juniors are correlated with stocks, after all) were negligible.

More importantly, junior miners moved – and closed – below their previous 2023 high. This breakout was just invalidated.

So, while gold hasn’t closed below the $2,000 level, the GDXJ moved below their previous highs, which is even more important, because that’s the natural course of action on the precious metals market – miners move ahead of gold. And since they invalidated their own breakout, it’s very likely that gold will do the same shortly.

I previously wrote that this immediate-term decline was already different than previous moves lower, and we just saw another confirmation thereof.

Junior miners were harbinger of bad news many times in the past, and it seems that they are sending a very important bearish message right now as well.

It seems that the top is in and the wait for the next big move is over. We’ll be almost certain (there are not certainties in any market, after all) when we see the next big daily slide. And it seems that we won’t have to wait for it for long, either.

In Tuesday’s (early) analysis, I wrote the following:

Now, this isn’t to say that there will definitely be no more bumps on this road. No. In fact, it’s common to see a daily or two-day pause or small rebound right after gold tops. That pause is then followed by a huge slide that takes most people by surprise.

Indeed, it seems that we saw that pause during Tuesday’s session. And it seems that it’s over, and that the decline can now continue.

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Przemyslaw Radomski, CFA
Founder, Editor-in-chief