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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.

  • As USDX is Poised to Pop, What Happens to Gold?

    December 28, 2020, 11:46 AM

    After awakening from its slumber last week, the USD Index may be in the early innings of a short-term breakout. Bursting with energy, the dollar basket closed (on Dec. 22) above its declining resistance line (although more data is needed to confirm a larger move).

    And to quote Francis Bacon, because “we rise to great heights by a winding staircase of small steps,” Tuesday’s ‘small step’ may be the beginning of an epic comeback.

    Please see below:

    ChartDescription automatically generated

    In this week’s early trading, the USDX moved lower and then rallied back up, after touching its previous resistance line, which now appears to have turned into support. Despite the initial decline, the USDX is now more or less where it had started this week’s trading. Its ability to reverse the initial decline appears bullish.

    While the USDX traded lower-to-flat from Dec. 23 – 25, the price action still follows a familiar playbook: In 2018, the USDX dipped below the 1.618 Fibonacci extension level before circling back with a vengeance (The initial bottom occurred in early 2018, with the final bottom not far behind.) Moreover, the 2018 USDX bottom also marked the 2018 top in gold, silver and the gold miners (depicted in charts 2 and 3 below).

    Chart, histogramDescription automatically generated

    I previously (Dec. 14) wrote that the USDX was repeating its 2017 – 2018 decline to some extent. The starting points of the declines (horizontal red line) as well as the final high of the biggest correction are quite similar. The difference is that the recent correction was smaller than it was in 2017.

    Since back in 2018, the USDX’s bottom was at about 1.618 Fibonacci extension of the size of the correction, we could expect something similar to happen this time. Applying the above to the current situation would give us the proximity of the 90-level as the downside target.

    “So, shouldn’t gold soar in this case?” – would be a valid question to ask.

    Well, if the early 2018 pattern was being repeated, then let’s check what happened to precious metals and gold stocks at that time.

    In short, they moved just a little higher after the USDX’s breakdown. I marked the moment when the U.S. currency broke below its previous (2017) bottom with a vertical line, so that you can easily see what gold, silver, and GDX (proxy for mining stocks) were doing at that time. They were just before a major top. The bearish action that followed in the short term was particularly visible in the case of the miners.

    Consequently, even if the USD Index is to decline further from here, then the implications are not particularly bullish for the precious metals market.

    And as we approach the New Year and beyond, I expect a similar pattern to emerge.

    Why so?

    First, the USDX is after a long-term, more-than-confirmed breakout. This means that the long-term trend for the U.S. currency is up.

    Second, the amount of capital that was shorting the USDX was excessive even before the most recent decline. This means that the USD Index is not likely to keep declining for much longer.

    In addition, after last week’s drawdown in gold and the gold miners, the sun appears to be setting on the yellow metal. As ‘buy the dip’ morphs into ‘sell the rally,’ gold’s downtrend is likely to resume. Furthermore, the 2018 analogue signals that the SPX’s (S&P 500 Index) days are also numbered (If you analyze the chart above, you can see that the USDX bottom coincided with the SPX top.)

    Fundamentally, the USDX is also poised to pop.

    On Tuesday (Dec. 22), I highlighted the misguided narrative plaguing the U.S. dollar. In short:

    With liquidity spigots on full blast around the world, the U.S. isn’t the only region expanding its money supply (And remember, currencies trade on a relative basis.) In fact, the European Central Bank (ECB) has more assets on its balance sheet than the U.S. Federal Reserve (FED).

    And after another update, the ECB’s spending spree has now reached a record €7 trillion (As a point of reference, the Dec. 22 ECB chart was relative to the FED, so both balance sheets were presented in U.S. dollars. The chart below depicts the ECB’s balance sheet in euros).

    Graphical user interface, chartDescription automatically generated

    Week-over-week, the ECB’s balance sheet increased by €59 billion. But the real story? The ECB’s total assets now equal 69% of Eurozone GDP – nearly double the FED’s 35%. So while EUR/USD clawed back some of its early-week losses (after the EU and the U.K. reached a Brexit agreement), its prior three-day downtrend (Dec. 18 – 22) is likely to continue (Remember, movement in the euro accounts for nearly 58% of the movement in the USDX.)

    Consequently, the implications for the precious metals market are not as bearish as everyone and their brother seems to tell you. Conversely, the forex market could provide the PMs and mining stocks with a substantial bearish push in the coming weeks – or even days.

    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 and Miners Are Not in Santa’s Bag

    December 21, 2020, 11:06 AM

    Do you feel the Christmas spirit when it comes to the yellow metal and miners? Because we don’t. Multiple signs over the past few days point to bearish weeks ahead for gold and the gold miners. The VanEck Vectors Gold Miners ETF (GDX) - the most liquid vehicle for investors and traders to gain exposure to gold mining companies – is indicating that things are only about to go downhill from here and a lack of action from options traders only serves to confirm that.

    Despite rallying by 8.7% over a three-day stretch, the GDX traded sharply lower on Friday (Dec. 18), and yet again, failed to recapture its 50-day moving average (unlike gold). Moreover, GDX also closed below its early-December intraday high, while the GLD ETF remained above its analogous price level.

    ChartDescription automatically generated

    The relative weakness (miners underperforming gold) supports the following bearish thesis:

    While gold corrected about 61.8% of its November decline, gold miners declined only half thereof. In other words, they underperformed gold, which is bearish.

    The GDX ETF moved to its 50-day moving average – the level that kept its rallies in check since early October. Can miners move above it? Sure, they did that in early November, but is it likely that such a move would be confirmed or followed by more significant strength? Absolutely not. Let’s keep in mind two things:

    1. Back in early November, the GDX moved above the 50-day MA, when gold did the same thing, so if the GDX wanted to rally above this MA, it “should have” done so yesterday. It was too weak to do it.
    2. The early-November move above the 50-day MA was invalidated in just 2 days.

    Moreover, please note that the performance of the GDX ETF from late-November to now looks like an ABC correction. This is not a bearish sign on its own, but it fits other indications described today and this week in general. It increases the chance that the top is already in or very, very close.

    Another important development was the spike in volume during last Thursday’s (Dec. 17) upswing. It resulted in the largest number of GDX shares traded since the November 6 top (on days when GDX is positive), and we all know what happened to GDX after November 6 (As a point of reference, the four other highest volume days since the November 6 top coincided with declines of 6.13%, 2.74%, 3.40% and 4.29%).

    In addition, options traders aren’t buying GDX’s rally. Despite put options (which profit when GDX declines) trading relatively flat, call options (which profit when GDX rallies) traded at a significant discount last Friday. Please take a look at the table below for details (courtesy of Yahoo! Finance)

    A picture containing textDescription automatically generated

    The lack of demand among options traders is another signal that last week’s rally is unlikely to continue.

    Lastly, I’d like to share with you some thoughts on price targets.

    How high could miners go? Perhaps only to the previous lows and by moving to them, they could verify them as resistance. The previous – October – low is at $36.01 in intraday terms and at $36.52 in terms of the daily closing prices. No matter which level we take, it’s not significantly above the pre-market price of $35.76, thus it seems that adjusting the trading position in order to limit the exposure for the relatively small part of the correction is not a good idea from the risk to reward perspective – one might miss the sharp drop that follows. Please note how sharp the mid-November decline was initially.

    That’s almost exactly what happened – the GDX ETF rallied to $36.92 in intraday terms, and to $36.50 in terms of the daily closing prices. The breakdown was verified in terms of the daily closing prices, which is more important than what happened in intraday terms.

    Consequently, the outlook is bearish as it seems that miners are ready for another move lower. There’s still a chance that the precious metals sector would move higher based on a possible short-term decline in the USD Index, but this chance is slim, especially given today’s pre-market decline in both the USD Index and gold.

    The next downside target for the GDX ETF is the February top in terms of the closing prices – $31.05.

    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 and Silver Waiting on USDX, No Bottom Yet

    December 14, 2020, 11:59 AM

    Silver still has some way to go before bottoming. It has not rallied despite a lower USDX (gold and miners did not rally either) and a higher stock market. Silver has bright days ahead, but not until it passes this downward shift in trend and bottoms. And please remember, gold’s more volatile little brother is more prone to sudden price swings as traders like to pick up some cheap silver after a pullback.

    Graphical user interface, chartDescription automatically generated

    While gold broke below its September low and now verified its breakout, silver just moved to its own September low and then bounced back. After moving higher, silver seems to have topped right at its 38.2% Fibonacci retracement based on the August – September decline and the declining resistance line.

    What does this imply? Not much, actually – it means that the white metal is continuing to trade sideways after breaking below the rising, medium-term support line in mid-September.

    Silver shrugged off the rally in the general stock market and the decline in the USD Index – it could have rallied on any of the above, and instead it just kept consolidating.

    Consequently, silver seems to be preparing for a bigger mover lower.

    It’s also important to note that silver is holding up much better than gold and – in particular – mining stocks. If this was the early stage of a rally, miners would have been strong, and silver would have been weak or average. What we see confirms the validity of the bearish case for the next few weeks or months.

    Let’s take a look below for details.

    ChartDescription automatically generated

    The thing that I want to emphasize today is the aftermath of the clear September moves. It was then that the USD Index broke above its declining resistance line, and it was then that gold and silver broke below their rising support lines. Miners broke below their support line in August, but the final and decisive breakdown took place in September.

    What happened since that time? The USD Index moved somewhat higher, but then ultimately moved to and stayed at new yearly lows. Gold, silver, and mining stocks should have rallied given the above. They have not.

    Silver is more or less at the level just before it broke, gold is below it, and mining stocks are also below it – the most out of the entire trio.

    So, it is not only the case that silver was strong and miners were weak in the last several days – it’s been the case over the past few months as well. The implications are bearish.

    Moreover, please note that the general stock market moved higher since September, which didn’t trigger a sustainable rally in silver or mining stocks. In fact, the latter just verified their breakdown below their September and October lows. Again, the implications are bearish.

    Additionally, the implications coming from silver’s long-term chart are also bearish for the next several weeks (perhaps even months) due to the size of the volume that accompanied the recent monthly rally.

    ChartDescription automatically generated

    If you look at the monthly silver volume levels, it seems likely that the next sizable downswing has already begun. The previous substantial monthly volume in silver accompanied the 2011 top. The analogy doesn’t get more bearish than this. Ok, it would, if there were multiple key tops confirmed by huge monthly volume. But the 2011 top was so significant that other tops are not comparable, except for the most recent one. Thus, the implications are bearish.

    Moreover, please keep in mind that while gold moved to new highs, silver – despite its powerful short-term upswing – didn’t manage to correct more than half of its 2011 – 2020 decline.

    In fact, silver has already invalidated its move above the lowest of the classic Fibonacci retracement levels (38.2%), which is not something that characterizes extraordinarily strong markets.

    Based on the above chart, it seems that silver is likely to move well above its 2011 highs, but it’s unlikely to do it without another sizable downswing first.

    Thank you for reading our free analysis today. Please note that the following 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: Have We Seen the Bottom Yet ?

    December 7, 2020, 1:03 PM

    As we dive into December, everything seems to hinge on an ever-changing daily news cycle. Coronavirus cases surging? Gold goes up, oil goes down. Another positive vaccine trial? Stocks go up, gold goes down. As the rollercoaster ride continues, there are various tools and indicators that one can examine to gain some sense of what’s happening in the fundamentals. The Gold Miners Bullish Percent Index ($BPGDM) and the The VanEck Vectors Gold Miners ETF (GDX) are two barometers that may be useful.

    Last week we examined the similarities in the performance of the Gold Miners Bullish Percent Index ($BPGDM) in 2016 and 2020. We noted that in 2016 the $BPGDM had an additional upswing before the slide and that the same pattern was evident in the middle of 2020. We also highlighted that in 2016 and 2020, the buying opportunity in the miners didn’t present itself until the $BPGDM was below 10, whereas it currently sits above 30. The conclusion was that the miners are likely to move even lower.

    The GDX ETF was the first ETF in the U.S. to allow investors and traders exposure to gold mining companies. Let’s briefly look at what has occurred in the GDX ETF in the first week of December.

    ChartDescription automatically generated

    On December 1, I wrote the following about the likely upside target for the mining stocks during the recent correction:

    How high could miners go? Perhaps only to the previous lows and by moving to them, they could verify them as resistance. The previous – October – low is at $36.01 in intraday terms and at $36.52 in terms of the daily closing prices. No matter which level we take, it’s not significantly above the pre-market price of $35.76, thus it seems that adjusting the trading position in order to limit the exposure for the relatively small part of the correction is not a good idea from the risk to reward perspective – one might miss the sharp drop that follows. Please note how sharp the mid-November decline was initially.

    That’s exactly what happened – the GDX ETF rallied to $36.14 and then it started moving back down. Is the corrective upswing over? This is quite likely, however, I wouldn’t rule out another move higher, if the USD Index declines to, or slightly below, the 90 level. Still, such a move higher in the miners is not likely to be anything significant.

    Also, let’s not forget that the GDX ETF has recently invalidated the breakout above the 61.8% Fibonacci retracement based on the 2011 – 2016 decline.

    ChartDescription automatically generated

    When GDX approached its 38.2% Fibonacci retracement, it declined sharply – it was right after the 2016 top. Are we seeing the 2020 top right now? This is quite possible – PMs are likely to decline after the sharp upswing, and since there is just more than one month left before the year ends, it might be the case that they move north of the recent highs only in 2021.

    Either way, miners’ inability to move above the 61.8% Fibonacci retracement level and their invalidation of the tiny breakout is a bearish sign.

    The same goes for miners’ inability to stay above the rising support line – the line that’s parallel to the line based on the 2016 and 2020 lows.

    Thank you for reading our free analysis today. Please note that the following 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 - Probing Gold’s Bottom

    November 30, 2020, 12:17 PM

    As 2020 is wrapping up, investors are trying to narrow down the target for gold’s bottom in the coming weeks. And as the yellow metal is experiencing what appears to be its worst month in the past four years, the Gold Miners Bullish Percent Index ($BPGDM) once again provides us with some key insights into reading the bearish signals for the precious metals.

    Last week, the BPGDM showed the highest possible overbought reading.

    Graphical user interfaceDescription automatically generated

    The excessive bullishness was present at the 2016 top as well and it didn’t cause the situation to be any less bearish in reality. All markets periodically get ahead of themselves regardless of how bullish the long-term outlook really is. Then, they correct. If the upswing was significant, the correction is also quite often significant.

    Please note that back in 2016, there was an additional quick upswing before the slide and this additional upswing had caused the $BPGDM to move up once again for a few days. It then declined once again. We saw something similar also in the middle of this year. In this case, the move up took the index once again to the 100 level, while in 2016 this wasn’t the case. But still, the similarity remains present.

    Back in 2016, when we saw this phenomenon, it was already after the top, and right before the big decline.

    Based on the decline from above 350 to below 280, we know that a significant decline is definitely taking place. But has it already run its course?

    Let’s consider two similar cases when gold miners declined significantly after the $BPGDM was very high: the 2016 decline and early-2020 decline.

    In both cases, the HUI Index continued to decline until it moved slightly below its 61.8% Fibonacci retracement level. This means that if the history is to repeat itself, we shouldn’t expect any major turnaround until the gold miners decline to 220 - 230 or so. Depending on how things are developing in gold, the above might or might not be the final bottom, though.

    Please note that the HUI already declined below its 2016 high. This breakdown is yet another bearish sign.

    Please note that back in 2016 (after the top), and in March 2020, the buying opportunity didn’t present itself until the $BPGDM was below 10. Currently, it’s above 30, so it seems that miners are likely to move even lower.

    ChartDescription automatically generated

    Two weeks ago, when I was preparing the analysis of the above GDX ETF chart, I commented on the late-week rebound in the following way:

    On Thursday (Nov 12th) and Friday (Nov 13th) of last week, miners moved and closed higher, but it’s important to note that their upswing was tiny and not accompanied by strong volume. In other words, it has all the characteristics of the breather that’s going to be followed by another move in the direction in which the market had been moving previously.

    The previous move was down, so the implications are bearish.

    Something similar took place during last week as well as the previous week, and thus today’s comments will be similar. It seems that we now have this specific weekly gold stocks seasonality where miners decline strongly early in the week and then show some limited strength before the weekend.

    For now, it seems that we have just likely seen a regular breather that is likely to be followed by further declines.

    As indicated earlier, the biggest part of the decline might start shortly after Thanksgiving.

    Also, let’s not forget that the GDX ETF has recently invalidated the breakout above the 61.8% Fibonacci retracement based on the 2011 – 2016 decline.

    ChartDescription automatically generated

    When GDX approached its 38.2% Fibonacci retracement, it declined sharply – it was right after the 2016 top. Are we seeing the 2020 top right now? This is quite possible – PMs are likely to decline after the sharp upswing, and since there is just more than one month left before the year ends, it might be the case that they move north of the recent highs only in 2021.

    Either way, miners’ inability to move above the 61.8% Fibonacci retracement level and their invalidation of the tiny breakout is a bearish sign.

    The same goes for miners’ inability to stay above the rising support line – the line that’s parallel to the line based on the 2016 and 2020 lows.

    Thank you for reading our free analysis today. Please note that the following 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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