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If you're interested in gold trading or silver trading and would like to see how we apply our gold trading tips in practice, you've come to the right place. The Gold & Silver Trading Alerts are the daily alert service provided by Przemyslaw Radomski, CFA that deals directly with the latest developments on the precious metals market. The situation is analyzed from long-, medium-, and short-term perspectives and topics covered go well beyond the world of precious metals themselves, ranging from the analysis of currencies, stocks, ratios, as well as using proprietary trading tools. Subscribers also receive intra-day follow-ups in case the market situation requires it. 1-2 alerts per week are posted also in our Articles section, so you can review these real-time samples before you subscribe.

Whether you already subscribed or not, we encourage you to find out how to make the most of our alerts and read our replies to the most common alert-and-gold-trading-related-questions.

  • Does Gold Want to Move Lower?

    April 14, 2021, 9:38 AM

    Gold’s slight rally might be getting some people excited, but appearances can be deceiving. USDX action hints at gold really wanting to move lower.

    The yellow metal has climbed, but only with lacklustre energy. If the USD Index is not rising, then gold should really be shooting up and breaking new monthly highs, but it isn’t. Readers have been asking what’s happening and some have been concerned with gold’s apparent strength. So, let’s break it down.

    History tends to rhyme and what happened before, will – to some degree - happen again. Gold is not immune to this concept, and the current implications are bearish.

    Let’s jump right into the charts for details.

    Graphical user interface, chartDescription automatically generated

    Gold topped right at its triangle-vertex-based reversal, just like it did in mid-March and in early January (please note the points that are marked on the above chart for confirmation – they are described in red). That happened on Thursday (Apr. 8), and since that time gold has continued to move lower.

    Gold invalidated the breakout above its mid-March highs, proving that what we saw was nothing more than just an ABC (zigzag) correction within a bigger downswing. The moves that follow such corrections are likely to be similar to the moves that precede it. In this case, the move that preceded the correction was the 2021 decline of over $150. This means that another $150+ decline could have just begun.

    It might appear bullish that gold rallied yesterday (Apr. 13), but it only appears this way until one compares this rally with what happened in the USD Index during the same time. Paying attention to today’s (Apr. 14) pre-market price moves further emphasizes the fake nature of yesterday’s rally in gold.

    The point is not that gold rallied, but that it hasn’t rallied enough.

    A picture containing chartDescription automatically generated

    During yesterday’s session, the USD Index moved to new monthly lows and this decline continued in today’s pre-market trading. Consequently, if gold was at least reacting to the USD’s movement “normally”, it should move to new monthly highs. If gold “wanted” to rally, it would have likely exploded to the upside. But what happened instead? Gold moved higher only somewhat yesterday – not to new monthly highs – and in today’s pre-market trading it’s actually slightly lower.

    This tells us that gold “wants” to move lower now.

    The USD Index moved lower, and it can move even lower on a very short-term basis, perhaps to the 50% Fibonacci retracement based on the entire 2021 rally, and the previous lows. And what would be the likely effect on gold? Based on what we saw yesterday, and what we see so far today, it seems that gold will likely ignore this decline in the USD Index, while waiting for the latter to finally show strength – so that it (gold) could decline.

    After all, gold has already topped right at its triangle-vertex-based reversal point. Consequently, it’s no wonder that it now continues to trade sideways, waiting for a trigger to move much lower.

    Moreover, please note that the recent zigzag makes the situation similar (approximately symmetrical) to what we saw about a year ago – between April and early June. Once gold breaks to new yearly lows, one could view this as a breakdown below the neckline of a major head and shoulders pattern where the April 2020 – June 2020 and the recent consolidations are the shoulders of the pattern. Based on such a pattern, gold would be likely to slide profoundly, probably well below $1,500. And the relative performance of gold vs. the USD Index tells us that such a short-term breakdown (to new yearly lows) is a likely outcome in the following weeks.

    ChartDescription automatically generated

    Gold stocks also failed to rally to new monthly highs, and they seem to be forming a relatively broad topping pattern, just as they did in mid-March and at the beginning of the year.

    The sell signal from the Stochastic indicator as well as the fact that miners failed to invalidate the breakdown below their broad head-and-shoulders pattern points to a bearish outlook for the following weeks (and perhaps months).

    All in all, the outlook for the precious metals market remains bearish and the recent rally didn’t change anything.

    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.

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

  • It’s the USDX’s Déjà Vu Moment

    April 13, 2021, 9:55 AM

    It’s uncanny how the USDX is mirroring its moves back in 2017-2018. This remarkably similar pattern proves that once in the elevator, the dollar is going up.

    Gold, meanwhile, is experiencing a corrective moment amidst a bigger downswing, while the miners are undergoing a decline on bigger volume than they had during last week’s correction. The signals remain bearish for the precious metals.

    In yesterday’s flagship Gold & Silver Trading Alert, I emphasized that the next short-term top had most likely already formed last Thursday (Apr. 8). The basis for this was the triangle-vertex-based reversal in gold as well as the USD’s correction that appears to be analogous to its 2018 correction that was followed by another powerful rally.

    In short, the above expectation (and reasoning behind it) remains up-to-date. Let’s start today’s discussion with a look at the USD Index.

    ChartDescription automatically generated

    The USD Index

    In short, the USD Index is trading sideways after moving to its mid-2020 lows and to its 38.2% Fibonacci retracement level. This combination of support levels has likely created a bottom in the USD Index, but that’s not the only factor that needs to be considered. The other – very important factor – is the continuous similarity in the USDX to how it rallied in 2018 after a very similar yearly decline. I wrote about it previously, and these comments remain up-to-date.

    ChartDescription automatically generated

    The similarity between two declines (2017-2018 and 2020-2021) is so big that it’s almost useless to describe it. Almost identical starting points, extremely similar ending points, and a very similar correction after the first half of the decline. The recent decline was a bit shorter, but otherwise both price moves are almost identical.

    In both cases, the declines have ended below 90 and the final confirmation came when the USD Index rallied above both: its declining blue resistance line, and the 50-day moving average, which is also marked in blue. There was also – in both cases – a pullback after the USD Index soared above its 200-day moving average that I marked in red. That’s the “you are here” point on the roadmap.

    What’s next? Most likely another sharp short-term upswing.

    Given the magnitude of the 2017-2018 upswing, ~94.5 is likely the USD Index’s first stop. And in the months to follow, the USDX will likely exceed 100 at some point over the medium or long term.

    Keep in mind though: as far as the fundamentals of different currencies are concerned, we’re not bullish the greenback because of the U.S.’s absolute outperformance. It’s because the region is doing (and likely to do) better than the Eurozone and Japan, and it’s this relative outperformance that matters, not the strength of just one single country or monetary area. After all, the USD Index is a weighted average of currency exchange rates and the latter move on a relative basis.

    If the USD Index is practically done correcting, then the rally in the precious metals is also over, and that’s exactly what the charts are saying.

    Chart, histogramDescription automatically generated

    Gold

    Gold topped right at its triangle-vertex-based reversal, just like it did in mid-March and in early January (please note the points that are marked on the above chart for confirmation – they are described in red). That happened on Thursday (Apr. 8), and since that time gold continue to move lower (also during today’s pre-market trading).

    Gold invalidated the breakout above its mid-March highs, proving that what we saw was nothing more than just an ABC (zigzag) correction within a bigger downswing. The moves that follow such corrections are likely to be similar to the moves that precede it. In this case, the move that preceded the correction was the 2021 decline of over $150. This means that another $150+ decline could have just begun.

    ChartDescription automatically generated

    Miners: GDX and GDXJ ETFs

    Just like the GDX ETF invalidated the breakout above its mid-March highs, it once again verified the breakdown below the broad head-and-shoulders pattern. Also, please note that the volume that accompanied yesterday’s (Apr. 12) decline was bigger than that which accompanied Friday’s (Apr. 9) intraday rally.

    The implications are bearish, and we can say the same about the implications of the situation in the GDXJ chart.

    ChartDescription automatically generated

    In this case, we even saw the invalidation of the breakout above the 50-day moving average.

    Even more interesting is that the GDXJ to gold ratio that I described previously, has just invalidated its small breakout above its declining resistance line.

    ChartDescription automatically generated with medium confidence

    Yesterday, I commented on the above in the following way:

    The breakout in the GDXJ to gold ratio is only tiny and unconfirmed. These moves always (since Oct. 2020) provided sell signals – the small breakouts below the declining resistance line were always invalidated and they were then followed by visible short-term declines.

    Five out of five previous attempts to break above the declining resistance line failed and were followed by short-term declines. Is this time really different?

    It seems to me that the five out of five efficiency in the GDXJ to gold ratio is more important than a single breakout in the GDX to gold ratio, especially considering that the latter was preceded by a similar breakout in mid-March. That breakout failed and was followed by declines.

    The implications of yesterday’s invalidation of the breakout in the ratio are clearly bearish.

    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.

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

  • Gold Miners: Corrections are Normal

    April 12, 2021, 10:02 AM

    Keep your eye on the ball. Just because the GDX ETF went up last week doesn’t mean that it’s in an uptrend. Corrections are part of the game.

    Just as the USD Index recently (last week) suffered a countertrend decline within a medium-term uptrend, so has the GDX ETF experienced a corrective upswing within a medium-term downtrend.

    Nothing moves in a straight line, so recent developments in both the gold miners and the USD Index are nothing to worry about. Everyone is still on track. Gold and the miners are headed for a medium-term downtrend and the USD Index is still gathering steam and will be leaving the station.

    With the gold miners attempting to dig themselves out of their 2021 hole, the labor of love could end as quickly as it began. With a temporary retreat of the USD Index last week and dormant U.S. Treasury yields doing much of the heavy lifting, the GDX ETF had plenty of help breaking down its wall of worry.

    However, with April showers likely to derail further construction activity, off-site momentum may not be as kind. Case in point: the GDX ETF is still trading below the neckline of its bearish head & shoulders pattern, and while the senior miners’ bounce above their March high may seem like a ground-breaking event, the synthetic strength is likely to hammer the miners over the medium term. Why so? Well, like a current running on extremely low voltage, Friday’s (Apr. 9) intraday bounce occurred on relatively low volume – with the positive momentum evaporating into the close.

    Please see below:

    ChartDescription automatically generated

    As further evidence, the March/April corrective upswing took the form of a zigzag pattern, which is indicative of a countertrend move within a medium-term downtrend. In addition, if you analyze the chart above, notice how fits and starts were part of the senior miners’ price action back in January? In both cases, the GDX ETF moved above the declining blue resistance line and the 50-day moving average. Yet … the GDX ETF is lower now than it was then.

    Furthermore, back in January, the GDX ETF initially ignored gold’s daily (Jan. 6) weakness. Thus, Friday’s (Apr. 9) outperformance by the GDX ETF is far from an all-clear. In fact, it could be the final creak before the foundation crumbles.

    Some might say that mining stocks are showing strength compared to gold as the GDX to gold ratio broke above its declining resistance line.

    ChartDescription automatically generated

    However, I don’t think it’s fair to say so. I think that seeing a breakout in the GDX to gold ratio is not enough for one to say that the miners to gold ratio is breaking higher.

    After all, the GDX ETF is just one proxy for mining stocks, and if miners were really showing strength here, one should also see it in the case of other proxies for the mining stocks when compared to gold.

    For instance, the HUI Index to gold ratio, the XAU Index to gold ratio, and the GDXJ (junior mining stocks) to gold ratio.

    Chart, histogramDescription automatically generated

    There is no breakout in the HUI to gold ratio whatsoever. In fact, the ratio is quite far from its declining resistance line. Even if we chose other late-2020 tops to draw this line, there would still be no breakout.

    ChartDescription automatically generated

    There is no breakout in the XAU to gold ratio either. The previous attempts for the XAU to gold ratio to rally above their 2020 high marked great shorting opportunities, which is very far from being a bullish implication.

    But the most bearish implication comes from gold’s ratio with another ETF – the GDXJ.

    ChartDescription automatically generated

    The breakout in the GDXJ to gold ratio is only tiny and unconfirmed. These moves always (since Oct. 2020) provided sell signals – the small breakout below the declining resistance line were always invalidated and they were then followed by visible short-term declines.

    Five out of five previous attempts to break above the declining resistance line failed and were followed by short-term declines. Is this time really different?

    It seems to me that the five out of five efficiency in the GDXJ to gold ratio is more important than a single breakout in the GDX to gold ratio, especially considering that the latter was preceded by a similar breakout in mid-March. That breakout failed and was followed by declines.

    Taking all four proxies into account, it seems that the implications are rather neutral to bearish. Especially when taking into account another major ratio - the one between HUI and S&P 500 is after a major, confirmed breakdown.

    ChartDescription automatically generated

    When the ratio presented on the above chart above is rising, it means that the HUI Index is outperforming the S&P 500. When the line above is falling, it means that the S&P 500 is outperforming the HUI Index. If you analyze the right side of the chart, you can see that the ratio has broken below its rising support line. For context, the last time a breakdown of this magnitude occurred, the ratio plunged from late-2017 to late-2018. Thus, the development is profoundly bearish.

    Playing out as I expected, a sharp move lower was followed by a corrective upswing back to the now confirmed breakdown level (which is now resistance). Mirroring the behavior that we witnessed in early 2018, after breaking below its rising support line, the HUI Index/S&P 500 ratio rallied back to the initial breakdown level (which then became resistance) before suffering a sharp decline. And with two-thirds of the analogue already complete, the current move lower still has plenty of room to run. Likewise, the early-2018 top in the HUI Index/S&P 500 ratio is precisely when the USD Index began its massive upswing. Thus, with history likely to rhyme, the greenback could spoil the miners’ party once again.

    In addition, the HUI to S&P 500 ratio broke below the neck level (red, dashed line) of a broad head-and-shoulders pattern and it verified this breakdown by moving temporarily back to it. The target for the ratio based on this formation is at about 0.05 (slightly above it). Consequently, if the S&P 500 doesn’t decline, the ratio at 0.05 would imply the HUI Index at about 196. However, if the S&P 500 declined to about 3,200 or so (its late-2020 lows) and the ratio moved to about 0.05, it would imply the HUI Index at about 160 – very close to its 2020 lows.

    All in all, the implications of mining stocks’ relative performance to gold and the general stock market are currently bearish.

    But if we’re headed for a GDX ETF cliff, how far could we fall?

    Well, there are three reasons why the GDX ETF might form an interim bottom at roughly ~$27.50 (assuming no big decline in the general stock market):

    1. The GDX ETF previously bottomed at the 38.2% and 50.0% Fibonacci retracement levels. And with the 61.8% level next in line, the GDX ETF is likely to garner similar support.
    2. The GDX ETFs late-March 2020 high should also elicit buying pressure.
    3. If we copy the magnitude of the late-February/early-March decline and add it to the early-March bottom, it corresponds with the GDX ETF bottoming at roughly $27.50.

    Keep in mind though: if the stock market plunges, all bets are off. Why so? Well, because when the S&P 500 plunged in March 2020, the GDX ETF moved from $29.67 to below $17 in less than two weeks. As a result, U.S. equities have the potential to make the miners’ forthcoming swoon all the more painful.

    Also supporting the potential move, the GDX ETF’s head and shoulders pattern – marked by the shaded green boxes in the first chart above – signals further weakness ahead.

    I wrote previously:

    The most recent move higher only made the similarity of this shoulder portion of the bearish head-and-shoulders pattern to the left shoulder) bigger. This means that when the GDX breaks below the neck level of the pattern in a decisive way, the implications are likely to be extremely bearish for the next several weeks or months.

    Turning to the junior gold miners, the GDXJ ETF will likely be the worst performer during the upcoming swoon. Why so? Well, due to its strong correlation with the S&P 500, a swift correction of U.S. equities will likely sink the juniors in the process. Besides, junior miners have been underperforming recently even without general stock market’s help.

    Furthermore, erratic signals from the MACD indicator epitomizes the GDXJ ETF’s heightened volatility. Remember though that the MACD indicator is far from a light switch. While false buy signals often precede material drawdowns, the reversals don’t occur overnight. As a result, it’s perfectly normal for the GDXJ ETF to trade sideways or slightly higher for a few days before moving lower.

    Please see below:

    ChartDescription automatically generated

    And unlike its senior counterpart, the GDXJ ETF cemented its relative underperformance by moving lower on Friday.

    So, how low could the GDXJ ETF go?

    Well, absent an equity rout, the juniors could form an interim bottom in the $34 to $36 range. Conversely, if stocks show strength, juniors could form the interim bottom higher, close to the $42.5 level. For context, the above-mentioned ranges coincide with the 50% and 61.8% Fibonacci retracement levels and the GDXJ ETF’s previous highs (including the late-March/early-April high in case of the lower target area). Thus, the S&P 500 will likely need to roll over for the weakness to persist beyond these levels.

    Some people (especially the permabulls that have been bullish on gold for all of 2021, suffering significant losses – directly and in missed opportunities) will say that the final bottom is already in. And this might very well be the case, but it seems highly unlikely. On a side note, please keep in mind that I’m neither a permabull nor a permabear for the precious metals sector, nor have I ever been. Let me emphasize that I’m currently bearish (for the time being), but about a month ago, we went long mining stocks on March 4 and exited this profitable trade on March 11.

    As another reliable indicator (in addition to the myriads of signals coming not only from mining stocks, but from gold, silver, USD Index, stocks, their ratios, and many fundamental observations) the Gold Miners Bullish Percent Index ($BPGDM) isn’t at levels that elicit a major reversal. The Index is now back at 40. However, far from a medium-term bottom, the latest reading is still more than 30 points above the 2016 and 2020 lows.

    Back in 2016 (after the top), and in March 2020, the buying opportunity didn’t present itself until the $BPGDM was below 10.

    Thus, with sentiment still relatively elevated, it will take more negativity for the index to find the true bottom.

    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 2020. 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?

    Well, in 2016 and early 2020, the HUI Index continued to move lower until it declined below the 61.8% Fibonacci retracement level. The emphasis goes on “below” as this retracement might not trigger the final bottom. Case in point: back in 2020, the HUI Index undershot the 61.8% Fibonacci retracement level and gave back nearly all of its prior rally. And using the 2016 and 2020 analogues as anchors, this time around, the HUI Index is likely to decline below 231. In addition, if the current decline is more similar to the 2020 one, the HUI Index could move to 150 or so, especially if it coincides with a significant drawdown of U.S. equities.

    In conclusion, akin to Humpty Dumpty, “all the King's horses and all the King's men” are unlikely to put the GDX ETF back together again. With the HUI Index to gold ratio, the XAU Index to gold ratio and the GDXJ ETF to gold ratio all splintering beneath the surface, the GDX ETF’s recent strength simply masks all of the cracks in the precious metals’ foundation. Furthermore, with the USD Index and U.S. Treasury yields threatening to swing the wrecking ball, the metals’ house of cards could soon face demolition. Thus, even though the long-term outlook for gold, silver, and mining stocks is very bullish, the short- and perhaps medium-term outlooks remain profoundly bearish, and investors that ignore the warning signs will likely find themselves submerged in the rubble.

    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.

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

  • EUR/USD: It Takes Time to Chop Down a Tree

    April 9, 2021, 9:36 AM

    There are many important indicators strongly suggesting that the EUR/USD should be lower, but despite that, the currency pair is stubborn. What’s happening?

    Germany, France, and now Spain have all lowered their growth estimates. Europe is lagging behind the U.S. in economic performance, printing money like crazy, and Covid-related restrictions are tightening. Still, the EUR/USD won’t budge, and gold is enjoying this delayed action. But the EUR/USD will have to face the music eventually, and when that happens (and it will), gold will no longer be singing in tune (for the medium-term).

    Before looking at the EUR/USD, let’s first examine how gold, miners and the USD Index are faring. 

    In yesterday’s (Apr. 8) analysis, I put the following in bold:

    Please keep in mind that since gold might reverse today, it could rally a bit first – this would not be bullish, but relatively normal.

    Here’s what happened in gold yesterday:

    And here’s what’s happening in today’s pre-market trading:

    Simply put, gold rallied yesterday, and it seems to have topped right at its triangle-vertex-based reversal.

    Moreover, gold has not only topped at the reversal point, but it also seems to have topped at the line that’s parallel to the line connecting two previous short-term bottoms. This means that the recent monthly rally was a near-perfect zigzag (a.k.a. ABC) correction – the most classic way in which a flag formation can form.

    The moves that follow such continuous patterns tend to be similar to the moves that preceded them. In this case, the move that preceded the zigzag pattern was the January – March decline, during which gold fell by more than $150. Repeating this kind of move would mean a decline in gold to about $1,600. This would be in perfect tune with what I wrote previously about gold’s likely interim downside target.

    The Miners

    What about other gold stocks – did they confirm the top as well?

    Yes, although the confirmation wasn’t particularly clear.

    The GDX ETF didn’t soar yesterday, but rather moved higher at a moderate pace. It moved visibly above the declining blue resistance line, but it stopped at the neck level of the previously completed broad head-and-shoulders pattern. This is a strong resistance that already worked once (in mid-March), so it’s quite likely that reaching it marked the end of the short-term correction.

    USD Index

    And the USD Index?

    It declined a bit more than seemed likely based on the 1:1 analogy to how much it declined back in 2018, but the deviation from this analogy is not big enough to say that the link is broken – far from it.

    I previously wrote the following with regard to the short-term bottoming target for the U.S. currency:

    What we saw yesterday definitely qualifies as a small correction. In fact, even if it was doubled it would still be small. And – more importantly – it would be in perfect tune with what happened in 2018 during the big rally.

    After rallying visibly above the:

    • 93 level
    • 200-day moving average
    • 61.8% Fibonacci retracement level based on the final part of the decline

    the USD Index moved back below the 93 level. This happened in May 2018 and it happened last week.

    Since both rallies are so similar, it’s nothing odd that we see a pullback in a similar situation.

    Back in 2018, the pullback was small and quick. It ended without the USD Index reaching its 200-day moving average. The pullback ended when the USDX moved approximately to its previous high and slightly below the 61.8% Fibonacci retracement.

    Applying this to the current situation (previous high at about 92.5, the 61.8% Fibonacci retracement at about 92.7, and the 200-day moving average at 92.66), it seems that the USD Index would be likely to find its bottom in the 92.3 – 92.7 area.

    Yesterday’s close at 92.07 and today’s pre-market move above 92.3 suggest that the bottom might have been formed just a little below the lower border of the above-mentioned target area. Since the history doesn’t necessarily repeat itself to the letter, but it often rhymes, the two situations – the current and the 2018 rallies – continue to be similar and the implications continue to be bullish. This, in turn, is bearish for the precious metals prices – at least in the next several weeks.

    All in all, gold and mining stocks seem to have reversed, while the USD Index seems to have bottomed or is quite close to bottoming. As gold and miners decline, the same is likely to be the case with silver.

    Having said that, let’s take a look at the market from a more fundamental angle.

    The More Things Change, The More They Stay the Same

    With gold hitching its carriage to the EUR/USD’s horse, the latter’s recent strength has enabled a smooth ride for the yellow metal. Case in point: since Apr. 1, the two have clearly enjoyed each other’s company.

    However, in ironic fashion, three important developments have occurred along the journey.

    1. Germany (Europe’s largest economy) had its 2021 GDP growth estimate reduced from 3.5% to 3.35%
    2. France (Europe’s second-largest economy) had its 2021 GDP growth estimate reduced from 6% to 5%.

    And the third?

    Well, on Apr. 8, Spain’s Economy Minister Nadia Calvino told Bloomberg that Europe’s fourth-largest economy will also reduce its 2021 GDP growth estimate.

    Please see below:

    Source: Bloomberg

    And as the dominoes continue to fall, also on Apr. 8, The Independent Authority for Fiscal Responsibility (AIReF) – an agency that oversees the sustainability of Spain’s public finances – reduced its 2021 GDP growth estimate from 8.2% to 6.6%.

    Source: AIReF

    But hey, who cares about GDP growth, right?

    If that wasn’t enough, Klaas Knot, a member of the European Central Bank (ECB) Governing Council, told CNBC on Apr. 8 that “we don’t want the run-up in bond yields to prematurely tighten our financing conditions.”

    Translation? Last week’s €343 billion expansion of the ECB’s balance sheet – the largest since June 2020 – was likely not a one-off event. Why so? Because Knot hinted at this himself.

    Please see below:

    Source: CNBC

    And why all of the concern?

    Well, because the Eurozone economy remains on ice. Case in point: a German constitutional court recently blocked the EU’s €750 billion recovery plan (Europe’s version of COVID-19 fiscal stimulus). And because the plan requires full support, The European Commission can’t raise the funds unless all EU member states agree. And with only 22 of the 27 EU nations on board, it could be months until the funds reach the real economy (if ever).

    But in the meantime, French Finance Minister Bruno Le Maire told Bloomberg on Apr. 7 that the recovery plan is “not on the right track” and that he’s “deeply concerned.”

    “We are in April 2021, and once again I have not seen any single penny,” he said.

    And why is Le Maire so concerned?

    Because his country is in lockdown as Europe struggles to control the coronavirus pandemic. Take a look at IHS Markit’s France Construction PMI (released on Apr. 8): in what passes for good news these days, “a further decline in French construction activity” gave way to “positive expectations” because the contraction was the softest in nine months.

    However, notice the caveat at the end of Eliot Kerr’s comments?

    That’s right: before the recent lockdown.

    Moreover, IHS Markit’s Eurozone Productivity PMI (also released on Apr. 8) showed that efficiency remains sluggish in France.

    Please see below:

    Furthermore, despite improving moderately in March, France is easily the worst performer of the major Eurozone economies.

    Graphical user interface, text, applicationDescription automatically generatedSource: IHS Markit

    For context, PMI (Purchasing Managers’ Index) data is compiled through a monthly survey of executives within industries that are integral to regional economic performance. A PMI above 50 indicates business conditions are expanding, while a PMI below 50 indicates that business conditions are contracting.

    Keep in mind though: since the data was weak before France went into lockdown, the virus surge will likely quash any and all momentum.

    Furthermore, while IHS Markit’s Eurozone Composite PMI (released on Apr. 7) hit 53.2 (service sector still in contraction at 49.6), overall Eurozone activity still lags behind the U.S.

    As an apples-to-apples comparison, IHS Markit’s U.S. Composite PMI (released on Mar. 24), stood at 59.1, while service sector activity jumped to 60.0.

    Please see below:

    And with fiscal stimulus left to the German courts and the fundamental risks rising, as mentioned, the ECB will be forced to pick up the slack. If you analyze the chart below, you can see that the ECB’s monthly PEPP purchases in March were the highest since November. And because currencies trade on a relative basis, relative outprinting by the ECB is fundamentally bearish for the EUR/USD.

    To that point, Reuters hinted that the ECB has no plans of slowing down.

    Source: Reuters

    Adding to the list of laggards, Europe has made little progress in its vaccine rollout. On Mar. 31, the U.S.-Eurozone spread between the share of people who have received at least one dose of a COVID-19 vaccine was 16.53%. However, on Apr. 7, the spread increased to 19.05%.

    So let’s review:

    Relative to the United States:

    • The economic outlook is worse in Europe
    • The money printer is working overtime in Europe
    • The virus spread is worse in Europe
    • The vaccine rollout is much slower in Europe

    Thus, should the above developments coincide with a stronger euro?

    Either way, once the EUR/USD decides to reflect these realities, a move lower will propel the USD Index higher. And because gold has a strong negative correlation with the U.S. dollar, the falling dominoes are profoundly bearish for the yellow metal.

    And seemingly front-running the action, gold’s strongest supporters have now become its largest detractors. Case in point: gold-backed ETFs have suffered massive outflows in recent months, with total assets declining to their lowest level since May 2020.

    Please see below:

    To explain, the yellow line above tracks the gold price, while the white line above tracks the total assets of gold-backed ETFs. For context, gold-backed ETF holdings have declined in four of the last five months and the only comparable example is the massive drawdown that we witnessed in 2012-2013. More importantly though, if you analyze the middle of the chart, you can see that even as gold rallied on Apr. 8, gold-backed ETFs still suffered outflows, with total holdings declining by 0.01%.

    In conclusion, up is down, down is up and the EUR/USD continues to follow in equities’ footsteps. Thus, for now, despite the myriad of fundamental indicators supporting a lower EUR/USD, the currency pair wants what it wants. However, after displaying this same behavior in December 2020, before rolling over, fundamentals are akin to chopping down a tree with an axe: it takes several swings to bring down the evergreen. And because gold’s recent strength is likely to fade with the EUR/USD, the medium-term weather forecast still signals cloudy skies ahead.

    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.

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

  • Mining Stocks: A House Built on Shaky Ground

    April 8, 2021, 9:46 AM

    It’s tempting to say that miners are showing strength compared to gold based on the GDX’s performance, but other mining proxies say otherwise.

    Just because a house is standing doesn't mean its foundations are solid, and that's exactly the case with the miners. 

    There’s one extra thing that I would like to point out about mining stocks’ technical picture today (Apr. 8), and that’s their performance relative to gold.

    ChartDescription automatically generated

    Some investors might say that mining stocks are showing strength compared to gold as the GDX to gold ratio broke above its declining resistance line.

    However, I don’t think it’s fair to say so. I think that seeing a breakout in the GDX to gold ratio is not enough for one to say that the miners to gold ratio is breaking higher.

    After all, the GDX ETF is just one proxy for mining stocks, and if miners were really showing strength here, one should also see it in the case of other proxies for the mining stocks when compared to gold.

    For instance, the HUI Index to gold ratio, the XAU Index to gold ratio, and the GDXJ (junior mining stocks) to gold ratio.

    Chart, histogramDescription automatically generated

    There is no breakout in the HUI to gold ratio whatsoever. In fact, the ratio is quite far from its declining resistance line. Even if we chose other late-2020 tops to draw this line, there would still be no breakout.

    ChartDescription automatically generated

    There is no breakout in the XAU to gold ratio either. The previous attempts for the XAU to gold ratio to rally above their 2020 high marked great shorting opportunities, which is very far from being a bullish implication.

    But the most bearish implication comes from gold’s ratio with another ETF – the GDXJ.

    ChartDescription automatically generated with medium confidence

    The GDXJ to gold ratio actually provides a sell signal, as the tiny breakout above the declining resistance line was already invalidated.

    Five out of five previous attempts to break above the declining resistance line failed and were followed by short-term declines. Is this time really different?

    It seems to me that the five out of five efficiency in the GDXJ to gold ratio is more important than a single breakout in the GDX to gold ratio, especially considering that it was preceded by a similar breakout in mid-March. That breakout failed and was followed by declines.

    Taking all four proxies into account, it seems that the implications are rather neutral to bearish. Especially when taking into account another major ratio - the one between HUI and S&P 500 is after a major, confirmed breakdown.

    ChartDescription automatically generated

    All in all, the implications of mining stocks’ relative performance to gold and the general stock market are currently bearish.

    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.

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

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