What a Positive Sentiment Among Gold Investors!
We saw a rally in miners yesterday, and we saw a reversal. It’s pretty much in tune with what I wrote previously about the likelihood for the junior miners to reverse this week.
Quoting yesterday’s analysis:
Well, I previously warned that we might get some sort of final run-up early this week, and that’s what appears to be taking place in today’s early trading.
The lines creating the rising wedge have crossed, and that likely marked an important short-term reversal point (that’s simply how things tend to work very often – also on the precious metals market). However, since those points tend to work on a near-to basis, it’s quite normal for the actual top to be taking place a bit later – for example, today.
Please note that the GDXJ already invalidated its breakout above its previous 2023 high, and in today’s early trading it’s making yet another attempt to break above those highs.
And just as the previous attempt failed, this one is likely to fail, too, especially given the above-mentioned triangle-vertex-based reversal point.
So, there’s not that much to report today, especially since the GDXJ is slightly down in today’s London trading.
Consequently, today’s analysis is going to be a bit different.
Today, I’m inviting you to join me on a journey to 2008.
You see, when we’re looking at the 2008 performance, or when we’re just thinking about it, we’re seeing the huge slide, and that’s pretty much all there is to it. Everything else gets tuned out as it’s not even comparably visible.
However, before the decline materialized, it was… well, not present at all. Nobody knew that it was just around the corner. Nobody “felt” the despair or the urgent need to sell mining stocks before they declined. And practically everyone felt this “need” after the prices were already low and it was time to buy (the irony…).
Today’s journey to 2008 is about looking at what everyone saw in July. Please imagine what everyone felt at that time.
The GDX ETF was after a several-month-long rally, and it just reversed, but it didn’t seem like a big deal at all. The short-term uptrend seemed strong.
The bulls were happy and confident at that time. The financial system had problems, as did the real estate market (nothing big, though - or so it seemed). Gold and gold stocks seemed like a solid bet – they are hedges against uncertainty, after all. Right?
The sentiment was very positive.
Math aligns with all the above: the GDX ETF was after a nice 60%+ run-up starting from its recent bottom.
The RSI was at about 70, but… Surely, miners were about to rally even more. Right?
Oh, so wrong.
What you see on the above chart was the final immediate-term high that preceded the unthinkable.
The GDX ETF plunged below $15, and it took less than 3 months for this decline to unwind. That’s about one-third of the most recent high, and about half of the low from which this “big 60%” corrective rally started.
Fast-forward to the current situation.
The GDX ETF is after a nice, 60%+ run-up from its recent low.
The sentiment is very positive.
After all, gold and gold stocks are going to rally during uncertain times in the banking sector. Right?
It doesn’t matter that the RSI is above 70 and many other indications (even crude oil’s behavior) resemble what happened in 2008, right?
So, it’s a great idea to be bullish at this moment. Right?
I know it “feels right” to be bullish at this time, but it was exactly the same thing before the slide started in 2008. This is what makes it so difficult to make money in the long run – to stay focused on what’s likely to happen and not follow the general sentiment. Just like I wrote yesterday…
Yes, I would very much prefer for the junior mining stock sector to move lower already, just as you would. And I know that waiting for the decline is unpleasant, boring, and discouraging. Fortunately, it seems that the prolonged waiting is over or about to be over. The patience (and doing what is difficult) is likely to be very well rewarded. There doesn’t have to be any specific fundamental or news-based trigger for the medium-term decline to continue. Seeing one, would speed things up, but it’s not necessary.
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Przemyslaw K. Radomski, CFA