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Gold Investment Updates are weekly gold investment newsletter provided by Przemyslaw Radomski, CFA. They are based on the flagship Gold & Silver Trading Alerts that focus on all the key factors that govern long- and medium-term outlooks for gold, silver, and mining stocks. These comprehensive reports (usually size of a small ebook) ensure that you’re kept up-to-date on important developments that 99%+ of investors are likely to miss.

  • Gold Investment Update: USDX Resurgence - Don’t Let It Catch You Flat-Footed!

    August 23, 2021, 9:26 AM

    With its negative correlation to the metals, the USDX rally weighed heavily on gold, silver and stocks. Stop and think: what would be if it continued?

    While the overwhelming majority of investors entered 2021 with a bearish outlook for the U.S. dollar, our optimism has proved quite prescient. The USDX bottomed at the beginning of the year. With the USD Index hitting a new 2021 high last week – combined with the EUR/USD, the GDX ETF, the GDXJ ETF, and the price of silver (in terms of the closing prices) hitting new 2021 lows – the ‘pain trade’ has caught many market participants flat-footed. Even silver stocks (the SIL ETF) closed at new yearly lows.

    Moreover, after the USD Index surged above the neckline of its inverse (bullish) head & shoulders pattern and confirmed the breakout above its cup and handle pattern, the combination of new daily and weekly highs is quite a bullish cocktail. Given all that, even if a short-term pullback materializes, the USDX remains poised to challenge ~97.5 - 98 over the medium term — perhaps even over the short term (next several weeks).

    Please see below:

    Furthermore, as the USD Index seeks higher ground, the euro has fallen off a cliff. For context, the EUR/USD accounts for nearly 58% of the movement of the USD Index, and that’s why the currency pair’s performance is so important. If you analyze the chart below, you can see that the Euro Index has confirmed the breakdown below its bearish head & shoulders pattern, and the ominous event was further validated after the back-test of the breakdown failed and the Euro Index hit a new 2021 low.

    Please see below:

    Eye In the Sky Doesn’t Lie

    What is signaling trouble for dollar bears as well, the USD Index often sizzles in the summer sun and major USDX rallies often start during the middle of the year. Summertime spikes have been mainstays on the USD Index’s historical record and in 2004, 2005, 2008, 2011, 2014 and 2018 a retest of the lows (or close to them) occurred before the USD Index began its upward flights (which is exactly what’s happened this time around).

    What’s more, profound rallies (marked by the red vertical dashed lines below) followed in 2008, 2011 and 2014. With the current situation mirroring the latter, a small consolidation on the long-term chart is exactly what occurred before the USD Index surged in 2014. Likewise, the USD Index recently bottomed near its 50-week moving average; an identical development occurred in 2014. More importantly, though, with bottoms in the precious metals market often occurring when gold trades in unison with the USD Index (after ceasing to respond to the USD’s rallies with declines), we’re still far away from that milestone in terms of both price and duration.

    Just as the USD Index took a breather before its massive rally in 2014, it seems that we saw the same recently. This means that predicting higher gold prices here is likely not a good idea.

    Ok, but didn’t we just see strength in gold – the one that you just wrote about? The USD Index soared last week by a full index point, and yet gold didn’t decline…

    That’s a good question, but the context is very important when analyzing specific price moves and their relative strengths. As I wrote earlier, we saw new yearly lows in practically every other important asset used for determining next moves in the precious metals sector: the EUR/USD, silver, and mining stocks (including practically all noteworthy ETFs and indices). So, did gold really show strength by not declining despite the USD’s strength, or was gold’s performance just a small, local deviation from the ongoing trend? Since practically everything else points to lower PM prices in the next weeks, the latter is more probable.

    Besides, there are both: technical and fundamental reasons for gold to behave in this way right now.

    The technical reason comes from the looming triangle-vertex-based turning point in gold, which is due today.

    The rising black support line starts at the 2020 low, which is not visible on the chart.

    Since these points work on a near-to basis, we might see a turnaround today or within the next few days.

    Seen Anything on the News Recently?

    Fundamentally, did anything important from the geopolitical point of view happen recently? Like, for example, the U.S. withdrawing from Afghanistan? Exactly…

    Geopolitical events tend to impact gold much more than they impact other parts of the precious metals sector, which serves as a perfect explanation of why gold didn’t decline along with the rest of the PMs. As a reminder, geopolitical events usually have a visible but temporary impact on the gold price. They change its short-term price moves, but they don’t change the forecast for gold in general.

    Consequently, it was not really the strength in gold vs. the USD Index that took place last week. It was a mix of the above and gold’s weakness relative to what happened in a geopolitical arena sprinkled with technicals. All in all, it’s not bullish for the PMs.

    On top of that, the eye in the sky doesn’t lie. And with the USDX’s long-term breakout clearly visible, the smart money is already backing the greenback.

    Please see below:

    Finally, while short covering helped propel the USD Index higher last week, speculators’ positioning still has room to run. For example, while the latest Commitments of Traders (COT) report shows that net-positioning (long 19,211 contracts) by non-commercial (speculative) futures traders is near its 2021 highs, enthusiasm for the U.S. dollar is still well below the highs witnessed in previous years.

    Source: COT

    The bottom line?

    Once the momentum unfolds, ~94.5 is likely the USD Index’s first stop, ~98 is likely the next stop, and the USDX will likely exceed 100 at some point over the medium or long term. Keep in mind though: we’re not bullish on the greenback because of the U.S.’ absolute outperformance. It’s because the region is fundamentally outperforming the Eurozone, the EUR/USD accounts for nearly 58% of the movement of the USD Index, and the relative performance is what really matters.

    In conclusion, the U.S. dollar’s resurgence has weighed heavily on gold, silver and mining stocks. And with the technicals, fundamentals and shifting sentiment supporting a higher USD Index over the medium term, the metals’ strong negative correlation with the U.S. dollar should give investors a cause for pause. To that point, while we’re bullish on gold, silver and mining stocks’ long-term prospects, sharp declines will likely materialize over the medium term before they continue their secular uptrends.

    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 target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

    Sincerely,
    Przemyslaw Radomski, CFA
    Founder, Editor-in-chief

  • Gold Investment Update: The General Left Alone

    August 16, 2021, 11:18 AM

    Gold commanded its unit to make another raid only to find itself stranded. The gold miners had already fled as fugitives, retreating without orders.

    The Gold Miners

    While gold shrugged off the Aug. 8 ‘flash crash’ and bounced back above its June lows, the yellow metal’s renewed sense of swagger hasn’t been mimicked by its precious metals peers. For example, while gold ended the week up by 0.86%, the GDXJ ETF (our short position) ended the week down by 1.72%.

    Please see below:

    Furthermore, while gold jumped by roughly $15 last week, the HUI Index declined by five index points. And with the bearish underperformance often a precursor to profound medium-term drawdowns, the precious metals are behaving like its 2012-2013. Last week is yet another confirmation of the analogy.

    Case in point: after the HUI Index recorded a short-term buy signal in late 2012 – when the index’s stochastic indicator was already below the 20 level (around 10) and the index was in the process of forming the right shoulder of a huge, medium-term head-and-shoulders pattern – the index moved slightly higher, consolidated, and then fell off a cliff.

    Please see below:

    To explain, can you see the HUI’s rally at the end of 2012 that followed a small buy signal from the stochastic indicator? I marked it with a purple, dashed line. No? That’s because it’s been practically nonexistent. The HUI Index moved higher by so little that it’s impossible to see it from the long-term point of view. On top of that, with the shape of gold’s recent price action, its RSI, and its MACD indicators all mirroring the bearish signals that we witnessed back in December 2012, the current setup signals that we’re likely headed for a similar swoon.

    For context, I warned previously that the miners’ drastic underperformance of gold was an extremely bearish sign. I wrote the following about the week beginning on May 24:

    (…) gold rallied by almost $30 ($28.60) and at the same time, the HUI – a flagship proxy for the gold stocks… Declined by 1.37. In other words, gold stocks completely ignored gold’s gains. That shows exceptional weakness on the weekly basis and is a very bearish sign for the following weeks.

    And why is this quote so important? Well, because the bearish phenomenon still remains intact. As mentioned, with gold rising by roughly $15 and the HUI Index declining by about five index points, the bearish underperformance is accelerating. Precisely, something similar happened during the week beginning on July 6. The gold price rallied by $27.40, and the HUI Index declined by 1.39. As a result, with the HUI Index’s ominous signals still present, if history rhymes (as it tends to), medium-term support will likely materialize in the 100-to-150 range. For context, high-end 2020 support implies a move back to 150, while low-end 2015 support implies a move back to 100. And yes, it could really happen, even though such predictions seem unthinkable.

    In addition, the drastic underperformance of the HUI Index also preceded the bloodbath in 2008. To explain, right before the huge slide in late September and early October, gold was still moving to new intraday highs; the HUI Index was ignoring that, and then it declined despite gold’s rally. However, it was also the case that the general stock market suffered materially. If stocks didn’t decline back then so profoundly, gold stocks’ underperformance relative to gold would have likely been present but more moderate.

    Nonetheless, bearish head & shoulders patterns have often been precursors to monumental collapses. For example, when the HUI Index retraced a bit more than 61.8% of its downswing in 2008 and in between 50% and 61.8% of its downswing in 2012 before eventually rolling over, in both (2008 and 2012) cases, the final top – the right shoulder – formed close to the price where the left shoulder topped. And in early 2020, the left shoulder topped at 303.02. Thus, three of the biggest declines in the gold mining stocks (I’m using the HUI Index as a proxy here) all started with broad, multi-month head-and-shoulders patterns. And in all three cases, the size of the declines exceeded the size of the head of the pattern.

    Furthermore, when the HUI Index peaked on Sep. 21, 2012, that was just the initial high in gold. At that time, the S&P 500 was moving back and forth with lower highs. And what was the eventual climax? Well, gold made a new high before peaking on Oct. 5. In conjunction, the S&P 500 almost (!) moved to new highs, and despite bullish tailwinds from both parties, the HUI Index didn’t reach new heights. The bottom line? The similarity to how the final counter-trend rally ended in 2012 (and to a smaller extent in 2008) remains uncanny.

    As a result, we’re confronted with two bearish scenarios:

    1. If things develop as they did in 2000 and 2012-2013, gold stocks are likely to bottom close to their early-2020 low.
    2. If things develop like in 2008 (which might be the case, given the extremely high participation of the investment public in the stock market and other markets), gold stocks could re-test (or break slightly below) their 2016 low.

    In both cases, the forecast for silver, gold, and mining stocks is extremely bearish for the next several months.

    As further evidence, let’s compare the behavior of the GDX ETF and the GDXJ ETF. Regarding the former, the senior miners (GDX) are in the midst of forming an ominous bear flag and the volume that accompanied Friday’s (Aug. 13) corrective upswing was relatively weak and it declined while the flag pattern was formed – just as it should if the formation was valid.

    Conversely, the GDX ETF did invalidate the breakdown below the neckline of its bearish H&S pattern (which is a bullish sign). However, the GDXJ ETF did not. And with the junior miners’ initial plunge (the pole) implying a continuation of the downtrend (following a consolidation that forms the flag), there are more indicators weighing down the gold miners than lifting them up.

    Please see below:

    Wave the Flag! The Bear Flag!

    Speaking of the GDXJ ETF, not only are the junior miners lagging behind their senior counterparts, but the four-hour chart provides a clear visual of the initial breakdown and the formation of the current bear flag.

    Please see below:

    The flag is perfect, and it took place on relatively declining volume, suggesting that another move will also be to the downside. After all, the moves that follow flags tend to be similar to the ones that preceded them.

    The price levels at which the flag was formed are also very important, and it’s clearer on the daily chart.

    Junior miners broke below the previous 2021 lows, and they held this breakdown, even though gold rallied quite visibly last week. This serves as a great confirmation that the move lower is about to take place.

    And how should we expect the climax to unfold? Last week, I wrote the following:

    Well, the GDXJ ETF may consolidate in the short term, but lower lows are still likely, and initial support should materialize at roughly $37 (the 61.8% Fibonacci retracement level). Thereafter, a short-term corrective upswing should follow before the GDXJ ETF reverses course once again and records its final bottom near the end of the year – at much, much lower price levels. All in all, it seems that our profits on the GDXJ (short position in it) are going to become MUCH bigger before this decline is over.

    The above remains up-to-date. In fact, we already saw the short-term consolidation last week, so the decline could resume any day now.

    In conclusion, the gold miners’ continued underperformance of the yellow metal is akin to a fire alarm signaling an impending blaze. And while many investors have forged through the smoke in 2021 and suffered a loss of breath in the process, our medium-term forecast does not change our outlook for gold, silver and mining stocks over the long term. With the trio underpinned by robust long-term fundamentals and their medium-term drawdowns likely to elicit secular buying opportunities, we’re confident that the precious metals will remain atop investors’ wish lists for years to come.

    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 target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

    Sincerely,
    Przemyslaw Radomski, CFA
    Founder, Editor-in-chief

  • Gold Investment Update: A Massive Slide – Be Ready For More!

    August 9, 2021, 7:38 AM

    What a week! Gold has dropped almost $60 since Friday, and silver came along reaching new yearly lows! Are you prepared for a wild ride downwards?

    The USD Index (USDX)

    While many investors forecasted a sharp decline in the USD Index, I warned on Aug. 2 that the stars were aligning for the greenback. And with gold, silver and mining stocks exhibiting strong negative correlations with the U.S. dollar, the latter’s rise could result in the former’s demise.

    I wrote:

    With the USD Index demonstrating late-week strength and bouncing off of the 38.2% Fibonacci retracement level, the greenback may have recorded a short-term bottom. In both 2008 and 2014, small moves lower solidified the USD Index’s short-term bottoms and remarkable rallies followed. In fact, the rapid reversals in both cases occurred with RSIs near 50 (close to the current reading of 53.32) and it’s likely a matter of when, not if, the greenback records a significant upward re-rating. The bottom line? The PMs will likely bear the brunt of the USD Index’s forthcoming strength.

    And after the USD Index soared back above the neckline of its inverse (bullish) head & shoulders pattern last week – and caused gold, silver and mining stocks to plunge in the process – the USDX remains poised to recapture ~98 over the medium term.

    Please see below:

    To explain, the USD Index often sizzles in the summer sun and major USDX rallies often start during the middle of the year. For example, summertime spikes have been mainstays on the USD Index’s historical record and in 2004, 2005, 2008, 2011, 2014 and 2018, a retest of the lows (or close to them) occurred before the USD Index began its upward flights.

    What’s more, profound rallies (marked by the red vertical dashed lines below) followed in 2008, 2011 and 2014. And with the current situation mirroring the latter, a small consolidation on the long-term chart is exactly what occurred before the USD Index surged in 2014. Likewise, the USD Index recently bottomed near its 50-week moving average; an identical development occurred in 2014. More importantly, though, with bottoms in the precious metals market often occurring when gold trades in unison with the USD Index (after ceasing to respond to the USD’s rallies with declines), we’re still far away from that milestone in terms of both price and duration.

    Please see below (quick reminder: you can click on the chart to enlarge it):

    Just as the USD Index took a breather before its massive rally in 2014, it seems that we saw the same recently. This means that predicting higher gold prices here is likely not a good idea.

    As further evidence, the eye in the sky doesn’t lie. And with the USDX’s long-term breakout clearly visible, the smart money is already backing the greenback.

    Please see below:

    The bottom line?

    Once the momentum unfolds, ~94.5 is likely the USD Index’s first stop, ~98 is likely the next stop, and the USDX will likely exceed 100 at some point over the medium or long term. Keep in mind though: we’re not bullish on the greenback because of the U.S.’ absolute outperformance. It’s because the region is fundamentally outperforming the Eurozone, the EUR/USD accounts for nearly 58% of the movement of the USD Index, and the relative performance is what really matters.

    In conclusion, the USD Index’s comeback dropped the guillotine on gold, silver and mining stocks, and with the GDXJ ETF (profits on our short position here increased further) also plunging by more than 5% last week, the greenback is having a profound impact on the precious metals. Moreover, with the latter also pressured by rising interest rates and the Fed’s increasingly hawkish rhetoric, lower lows are likely to materialize over the medium term. However, with robust fundamentals signaling a significant comeback over the long term, we eagerly await the opportunity to go long the precious metals once again.

    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 target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

    Sincerely,
    Przemyslaw Radomski, CFA
    Founder, Editor-in-chief

  • Gold Investment Update: Gold Jumps for Joy Only to Hit the Ceiling… Hard

    August 2, 2021, 10:01 AM

    Powell’s recent dovish remarks started a sugar high among investors. However, it seems like the hangover has already begun.

    The Gold Miners

    While gold, silver and mining stocks jumped for joy following Fed Chairman Jerome Powell’s dovish remarks on Jul. 28, their sugar high ended on Jul. 30. And while I warned that FOMC press conferences often elicit short-term bursts of optimism, it was likely another case of ‘been there, done that.’

    I wrote prior to the announcement:

    While the PMs may record a short-term bounce – which often occurs following Powell’s pressers – lower lows are still likely to materialize in the coming months.

    In the meantime, though, did you notice the tiny buy signal from the HUI Index’s stochastic indicator? And taking that into consideration, is it time to shift to the long side of the trade? Well, for one, it seems very likely that gold miners are declining similarly to how they declined in 2008 and 2012-2013. In both cases, there were local corrections within the decline. As a result, the recent strength does not justify adjusting our short positions in the junior mining stocks, and I continue to view them as prudent from the risk to reward point of view.

    Second, after the HUI Index recorded an identical short-term buy signal in late 2012 – when the index’s stochastic indicator was already below the 20 level (around 10) and the index was in the process of forming the right shoulder of a huge, medium-term head-and-shoulders pattern – the HUI Index moved slightly higher, consolidated, and then fell off a cliff.

    Please see below:

    Can you see the HUI’s rally at the end of 2012 that followed a small buy signal from the stochastic indicator? I marked it with a purple, dashed line.

    No? That’s because it’s been practically nonexistent. The HUI Index moved higher by so little that it’s impossible to see it from the long-term point of view.

    With the shape of gold’s recent price action, its RSI, and its MACD indicators all mirroring the bearish signals that we witnessed back in December 2012, the current setup signals that we’re likely headed for a similar swoon. Thus, with both gold and the HUI Index sounding the alarm, if the bullish momentum continues, it’s likely to be very limited in terms of size and duration. Conversely, the following slide is likely to be truly profound.

    For context, I warned previously that the miners’ drastic underperformance of gold was an extremely bearish sign. I wrote the following about the week beginning on May 24:

    (…) gold rallied by almost $30 ($28.60) and at the same time, the HUI – a flagship proxy for the gold stocks… Declined by 1.37. In other words, gold stocks completely ignored gold’s gains. That shows exceptional weakness on the weekly basis and is a very bearish sign for the following weeks.

    If it wasn’t extreme enough, we saw this one more time. Precisely, something similar happened during the week beginning on July 6. The gold price rallied by $27.40, and the HUI Index declined by 1.39.

    Likewise, with the HUI Index’s ominous signals still present, if history rhymes (as it tends to), medium-term support will likely materialize in the 100-to-150 range. For context, high-end 2020 support implies a move back to 150, while low-end 2015 support implies a move back to 100. And yes, it could really happen, even though such predictions seem unthinkable.

    In addition, the drastic underperformance of the HUI Index also preceded the bloodbath in 2008. To explain, right before the huge slide in late September and early October, gold was still moving to new intraday highs; the HUI Index was ignoring that, and then it declined despite gold’s rally. However, it was also the case that the general stock market suffered materially. If stocks didn’t decline back then so profoundly, gold stocks’ underperformance relative to gold would have likely been present but more moderate.

    Nonetheless, bearish head & shoulders patterns have often been precursors to monumental collapses. For example, when the HUI Index retraced a bit more than 61.8% of its downswing in 2008 and in between 50% and 61.8% of its downswing in 2012 before eventually rolling over, in both (2008 and 2012) cases, the final top – the right shoulder – formed close to the price where the left shoulder topped. And in early 2020, the left shoulder topped at 303.02. Thus, three of the biggest declines in the gold mining stocks (I’m using the HUI Index as a proxy here) all started with broad, multi-month head-and-shoulders patterns. And in all three cases, the size of the declines exceeded the size of the head of the pattern.

    Furthermore, when the HUI Index peaked on Sep. 21, 2012, that was just the initial high in gold. At that time, the S&P 500 was moving back and forth with lower highs. And what was the eventual climax? Well, gold made a new high before peaking on Oct. 5. In conjunction, the S&P 500 almost (!) moved to new highs, and despite bullish tailwinds from both parties, the HUI Index didn’t reach new heights. The bottom line? The similarity to how the final counter-trend rally ended in 2012 (and to a smaller extent in 2008) remains uncanny.

    As a result, we’re confronted with two bearish scenarios:

    1. If things develop as they did in 2000 and 2012-2013, gold stocks are likely to bottom close to their early-2020 low.
    2. If things develop like in 2008 (which might be the case, given the extremely high participation of the investment public in the stock market and other markets), gold stocks could re-test (or break slightly below) their 2016 low.

    In both cases, the forecast for silver, gold, and mining stocks is extremely bearish for the next several months.

    As further evidence, let’s compare the behavior of the GDX ETF and the GDXJ ETF. Regarding the former, the senior miners’ (GDX) RSI rose above 50 last week. However, the milestone preceded several corrective tops in 2020 and 2021. Thus, last week’s Fed-induced strength has only broadened the right shoulder of its bearish H&S pattern, and if completed, the size of the head implies a drawdown to roughly $28.

    Please see below:

    Meanwhile, the GDXJ ETF invalidated the breakdown below the neckline of its bearish H&S pattern last week. However, with the milestone likely a speed bump along the junior miners’ bearish journey, a mosaic of indications signal that their medium-term outlook remains quite somber. For context, with the junior miners’ RSI at 48.35, several flirtations with 50 coincided with the short-term peaks in 2021 and were followed by material declines. I marked these cases with red ellipses. And yes, it was also the case during the final corrective pre-slide upswing in March 2020.

    The bottom line?

    If gold repeats its June slide, it will decline by about $150. Taking the entire decline into account (since August 2020), for every $1 that gold fell, on average, the GDX was down by about 4 cents (3.945 cents) and GDXJ was down by about 6.5 cents (6.504 cents).

    This means that if gold was to fall by about $150 and miners declined just as they did in the past year (no special out- or underperformance), they would be likely to fall by $5.92 (GDX) and $9.76 (GDXJ). This would imply price moves to $27.76 (GDX) and $35.78 (GDXJ).

    In conclusion, gold, silver, and mining stocks received a helping hand from the Fed last week, as the charitable contribution uplifted the precious metals. However, while the central bank achieved its objective and talked down the U.S. dollar, prior bouts of short-term optimism faded once reality reemerged. As a result, with the USD Index now in season and the 2012 analogue looking more prescient by the day, gold, silver, and mining stocks will likely suffer profound declines in the coming months. However, with their long-term fundamentals still extremely bullish, new highs will likely dominate the headlines in the coming years.

    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 target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

    Sincerely,
    Przemyslaw Radomski, CFA
    Founder, Editor-in-chief

  • Gold Investment Update: USDX Defends Its Growth Thesis - Will It Pass With Honors?

    July 26, 2021, 9:54 AM

    The USDX rose above its inverse H&S pattern neckline. After months-long preparation, is it ready to take its final test… and shine?

    The USD Index (USDX)

    With investors putting the USD Index through a rigorous exam last week (ending Jul. 23), months of study helped the greenback pass the test with flying colors. Case in point: with the USD Index rising above the neckline of its inverse (bullish) head & shoulders pattern, the head implies a medium-term target of roughly 98. On top of that, with the USD Index’s textbook validation adding to the bullish momentum last week – with the greenback verifying its recent breakout and responding with further strength – the U.S. dollar is likely to graduate with honors in the coming months.

    What’s more, the bullish breakout was further validated when the USD Index closed the week above the neck level of its H&S pattern, and it’s difficult to imagine a more sanguine sign for the U.S. dollar. Thus, with the greenback poised to move sharply higher in the coming weeks, gold, silver and mining stocks are likely to head in the opposite direction.

    In addition, the USD Index often sizzles in the summer sun. To explain, major USDX rallies often start during the middle of the year, and with the dollar’s bullish IQ often rising with the temperature, gold, silver and mining stocks will likely feel the heat over the medium term.

    If you analyze the chart below, you can see that summertime surges have been mainstays on the USD Index’s historical record and double bottoms often signal the end of major declines or ignite significant rallies. For example, in 2004, 2005, 2008, 2011, 2014 and 2018, a retest of the lows (or close to them) occurred before the USD Index began its upward flights. In addition, back in 2008, U.S. equities’ plight added even more wind to the USD Index’s sails. And if the general stock market suffers another profound decline (along with gold miners and silver), a sharp re-rating of the USDX is likely in the cards.

    Please see below (quick reminder: you can click on the chart to enlarge it):

    On top of that, the eye in the sky doesn’t lie. And with the USDX’s long-term breakout clearly visible, the smart money is already backing the greenback.

    Please see below:

    As further evidence, the latest Commitments of Traders (COT) report shows that non-commercial (speculative) futures traders have increased their long exposure to the U.S. dollar (the light blue line below). More importantly, though, with longs bouncing off a roughly 10-year low and the current positioning still well below the highs set in previous years, the U.S. dollar still has plenty of room to run.

    Source: COT

    Finally, as the polar opposite of the USD Index, the Euro Index’s recent symmetrical decline mirrors the drawdown that we witnessed in mid-2020. And while the breakdown below the neckline of its bearish head & shoulders pattern still requires further verification, a continuation of the trend could usher the index back to the June 2020 lows or even lower. For context, the EUR/USD accounts for nearly 58% of the movement of the USD Index.

    In addition, when the Euro Index reached the neckline of its bearish H&S pattern in early April 2021, late September 2020, and late October 2020, a fierce rally ensued. However, this time around, the corrective upswing has been extremely weak. As a result, with lower highs and lower lows plaguing the Euro Index in recent weeks, it’s likely only a matter of time before the neckline officially breaks.

    Please see below:

    Even more relevant, the completion of the masterpiece could have a profound impact on gold, silver and mining stocks. To explain, gold continues to underperform the euro. If you analyze the bottom half of the chart above, you can see that material upswings in the Euro Index have resulted in diminishing marginal returns for the yellow metal. Thus, the relative weakness is an ominous sign. That’s another point for the bearish price prediction for gold.

    The bottom line?

    Once the momentum unfolds, ~94.5 is likely the USD Index’s first stop, ~98 is likely the next stop, and the USDX will likely exceed 100 at some point over the medium or long term. Keep in mind though: we’re not bullish on the greenback because of the U.S.’ absolute outperformance. It’s because the region is fundamentally outperforming the Eurozone, and the relative performance is what really matters.

    In conclusion, the USD Index will likely emerge victorious in this epic battle of wits. Moreover, with the GDXJ ETF (our short position) avoiding mirroring gold’s recent strength, it seems that when the USDX finally does rally profoundly, junior mining stocks will fall substantially. However, following a profound climax, gold, silver and mining stocks will likely resume their secular uptrends.

    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 target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

    Sincerely,
    Przemyslaw Radomski, CFA
    Founder, Editor-in-chief

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