Perfect Confirmation from Silver and Mining Stocks

Sometimes, the analysis kind of writes itself. It’s the days when the signs are so clear that it’s pretty much obvious what the next move will be.

Like now. Gold reversed practically exactly at the level where I had been expecting it to reverse – at the vertex of the triangle created by the previous resistance lines. It declined since that time, but the way in which silver and mining stocks reacted to what happened in gold makes it even more likely that we’ll see a slide shortly.

Perfect Confirmation from Silver and Mining Stocks - Image 1

Here’s the thing: while gold ended the week less than a dollar lower (so it was practically flat), silver moved higher by almost 2%, and junior miners moved lower by over 4.5%.

I’ve said it numerous times, and I’m going to say it once again because this combination of signals continues to have profound implications, and it continues to be very efficient.

Silver tends to outperform gold in the final part of the rally.

Gold stocks tend to underperform gold in the final part of the rally and in the early part of the decline.

We saw both indications, which makes the current outlook very bearish. Of course, this comes on top of the bearish implications that we saw in gold.

And on top of the breakout to new short-term highs in the USD Index, which is likely to rally more, thus causing gold, silver, and miners to decline further.

Perfect Confirmation from Silver and Mining Stocks - Image 2

The USDX is in the early days of making another leap higher, as it already verified the breakout above its May/June high. Due to this, the pressure for the precious metals sector to move lower is likely to increase.

Perfect Confirmation from Silver and Mining Stocks - Image 3

Perfect Confirmation from Silver and Mining Stocks - Image 4

Meanwhile, the GDXJ just broke and closed the week below its rising red support line. This is an important technical development, especially that junior miners just refused to break above the declining resistance line despite previous strength in gold. This shows that miners really want to slide here, not rally.

We’ve received multiple confirmations that the next move is going to be a downside and that the profits from our current position are going to increase much more before the trade is over. Also, let’s keep in mind that thanks to recent adjustments in the position, the profits have already increased (as we re-entered a large part of the short position at higher price levels).

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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief