Still Like 2008?
Are things more similar to 2008 or less similar to 2008, given the recent price moves in gold and mining stocks?
Let’s start with gold.
Back in 2008, gold soared sharply in September, and then it moved sideways for some time, not being able to break above the initial top and hold that breakout.
The stock market declined slowly at that time, and mining stocks – being impacted by both (gold and stocks) moved lower in a measured manner.
Let’s see what’s happening now.
Gold rallied sharply for several days, and now it’s been moving back and forth for several days, unable to break above the initial high and then hold above that high.
This sideways movement makes the current situation more like what we saw in 2008. It’s now not just the sharpness of the rally and similarity in terms of the sudden shift in sentiment (which is a fancy way of saying that people got really scared), but also the post-rally sideways movement that makes both periods alike.
What about the mining stocks? And stocks in general?
Stocks are likely to slide as well, but this time they have a bit of a different set-up in the short term.
You can see this on the above chart. The most recent very short-term move was to the upside, and while it didn’t change the medium-term trend at all, it likely pushed mining stock prices higher.
So, while miners moved higher for a bit longer than they did in 2008 (so it would seem that both cases are less similar), it’s also true that mines are reacting to the stocks market’s movement just like they did in 2008. So, in a way, if miners had moved lower here while stocks moved higher, it would be a deviation from the similarity.
Let’s not forget that stocks showed strength only in the very short term. Their outlook is as bearish as it gets based on what’s happening in world stocks.
I already wrote about it in much greater detail previously, but it’s worth featuring this chart once again. Otherwise, it’s easy to lose track of what’s really important – what is present in the background can be much more important than what’s happening on a day-to-day basis, and this is certainly the case right now.
Based on the above similarity, we are about to see a massive slide in stocks, perhaps even bigger than what we saw in 2008. Of course, this also means huge declines in the S&P 500 and in junior mining stocks. In fact, the latter are likely to be affected to a huge extent.
This means that the very short-term rally that we saw recently in the GDXJ is likely to become a WAY bigger decline in the following weeks and months.
Thank you for reading our free analysis today. Please note that the above is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim targets for gold and mining stocks that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.
Przemyslaw K. Radomski, CFA