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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.

  • Gold: Logic vs. Emotions, True vs. Temporary

    May 7, 2021, 9:08 AM

    How gold behaved yesterday, everyone knows. How it rallied before today’s opening bell, you probably already see as well. But can we assign this to some reasonable cause or rather just emotionality? Let’s look at the charts first.

    Yesterday was one of “those” days and today’s pre-market trading ones one of those mornings. “Those” sessions that we all know take place every now and then, but we secretly wish they didn’t. Like one of those things that “happen to other people” but never to us. You don’t like it, and I don’t like it. “Those” days test our knowledge (what’s normal and what’s not?) and – most of all – patience. Something happened, markets reacted, and just when it was likely that after several more days (a few weeks at best) the junior miners would slide profoundly to new yearly lows, it started to seem much less likely. The keyword here, however, is “seem”, and in today’s analysis, I’ll show you why

    That “something” yesterday that most likely triggered the rally in gold was the surprisingly positive employment numbers that resulted in temporary changes in the real yields (more on that later today; and yes, this does make the current situation look even more like 2013 …). And that “something” that likely triggered another rally was likely the exceptionally bad… employment numbers (different numbers, though, as yesterday’s report was about initial jobless claims and today’s report was the nonfarm payrolls for April. There were fewer jobless claims, but fewer jobs as well. It shouldn’t have been the case that gold rallied on both pieces of news, but it’s what we saw. Overall, yesterday’s and today’s rally seems to have much more to do with emotionality and, well, randomness than it does with cold logic (by the way, if you haven’t read Fooled by Randomness by Nassim Taleb, I highly recommend it).

    And a great way to deal with emotionality and randomness is through charts, as far as the markets are concerned (and, well, through Stoic philosophy in general, but that’s a matter going well beyond the scope of this analysis). When looking at charts, we can apply tools designed to detect emotional peaks and breakthroughs that markets endure.

    After all, it’s not important that a line or slope was broken by itself – it’s important because of what it all represents and how people interpret it. Times change, but the fact that people feel fear and greed doesn’t change, which is why even distant patterns and similarities to what we see on different occasions can be useful.

    All right, all right, all right, it’s all nicely said, but when will I be making lots of money on this trade?

    Likely a week – or so – longer than what seemed to be the most plausible scenario before yesterday’s session. I’m quite sure most people will agree that waiting an extra week for a truly massive price move doesn’t sound that bad after all, especially given that we’re already sitting on profits from the previous positions – everyone following my analyses to the letter profited from the last long trade in the miners, and many people profited handsomely by exiting the previous short position (GDX) on Feb. 26, 2021 and (GDXJ) on Mar. 4, 2021 – extremely close to the yearly bottom (at least so far).

    While the market’s moves don’t depend on me, analyzing the market thoroughly, diligently and carefully, and then reporting my findings to you (and keeping you updated), does. Therefore, during yesterday’s session, I sent the intraday Alert to my subscribers, in which I discussed the situation. Not much changed on the market since I posted/sent it, so today’s analysis is going to be an extension of what I wrote then.

    Let’s jump right into charts, starting with the USD Index.

    In yesterday’s regular analysis, I wrote the following about the above chart:

    Yes, the USD Index soared on Friday, Apr. 30, and based on that it invalidated the breakdown below the 61.8% Fibonacci retracement level. It also broke above its declining resistance line, but it’s been trading sideways since that time. The rally didn’t continue, which likely makes traders question its validity.

    What is really happening here is that the USD Index has been verifying the breakout – and it managed to do so. Consequently, the situation is bullish for the next several weeks (even if we see a very short-term move to somewhere around the recent lows).

    This, in turn, means that gold is likely to fall in the following weeks (not necessarily in terms of days, though).

    As traders had previously been unsure if the strength in the USD Index was indeed the beginning of a new trend, they just got a “confirmation” that the USD Index is not done with declining. In my view, that’s an incorrect interpretation of what’s happening, and while the traders might be right about this for the next several hours or days, they are likely very wrong about the overall direction of the trend over the course of the following months. This means precious metals and mining stocks have likely overreacted yesterday, and this will be reversed once the USD Index proves that last Friday’s rally was not accidental. A rally to new monthly highs might be enough proof.

    In the near term, the USD Index could once again test the very recent lows and perhaps reach the rising medium-term support line – at about 90.4 – 90.5. In response, gold might even rally to $1,830 or so, which I already wrote yesterday.

    [Edit: I wrote the above in advance, and I’m adding this paragraph at 9 AM EST – the USD Index just reached the above-mentioned target area, so the bottom might be in at this time or it might be extremely close.]

    Quoting my yesterday’s thoughts on that matter:

    How high could gold rally in the very near term? Perhaps by another $15, to about $1,830 as that’s where we have the 38.2% Fibonacci retracement level based on the August 2020 – March 2021 decline. However, even if gold does rally there (which is far from being certain – the top might form as early as today), it doesn’t seem likely to me that GDXJ would soar substantially. Please note that miners tend to be particularly weak relative to gold right at or before the top and GDXJ is already underperforming.

    Also, a quick rally to this level would imply a move back to the previously broken support line – it could work as resistance right now.

    Gold moved beyond the blue rectangle that I marked on the above chart (a copy of the 2020 consolidation) but it is not required for the two shoulders of a head-and-shoulders pattern to be 100% identical, so it didn’t invalidate the possibility of this pattern being formed in the following weeks.

    Mining stocks have indeed underperformed yesterday. The GDX ETF moved to new intraday highs, but it closed the day below the highest closing price of April. The GDXJ ETF was unable to rally to new intraday highs – it underperformed once again. In fact, looking at the GDXJ ETF chart reveals that yesterday’s session wasn’t really that important in terms of price changes… As long as one is sticking to the selection of assets that I’m featuring in the analyses.

    Still, yesterday’s session provides us with some interesting clues. The most interesting thing is the spike in volume that we’ve seen in both ETFs. It’s particularly notable in the case of the GDXJ ETF.

    On both charts, it’s clear the spikes in volume during daily rallies are something that marks the end of the rally, not its beginning. On the GDXJ ETF chart, we see an additional layer of detail. Namely, the way the volume-spikes are positioned relative to each other and how it all compares to the late-2020 and early-2021 performance.

    In early November 2020, we saw a spike in volume which marked a local top. Then the early-December spike marked the start of a rally. Then after– more or less – an equal amount of time, we saw another spike in volume, which once again marked a local top – that was the early-2021 high.

    Now, we saw a spike in volume in late February 2021 (local top), then in late March (start of the rally), and now – in early May, after a more or less equal amount of time – we can see another spike in volume. Consequently, it seems quite likely that what we see right now is similar to what we saw at the beginning of the year. The difference is that if miners decline from here, then the slide is likely to be much bigger as a move to new yearly lows would confirm the broad head-and-shoulders pattern in the miners.

    Another, obvious, clue is that miners – unlike gold – didn’t soar to new highs, so one might say that they continue to underperform gold, which is bearish, especially when combined with outperforming silver.

    And that’s exactly what silver is doing right now – it’s outperforming gold on a short-term basis. This is what has been preceding major tops for many years, and it seems that the same fate awaits the precious metals market shortly.

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

    Taper Your Expectations

    After the Bank of Canada (BOC) decided to scale back its asset purchases on Apr. 21, the Bank of England (BOE) announced on May 6th that it will reduce its bond purchases from £4.40 billion per week to £3.40 billion per week beginning some time in between May and August.

    Please see below:

    Source: BOE

    And why is this so important?

    Well, with the BOE following in the BOC’s footsteps, the U.S. Federal Reserve (FED) is likely next in line. To explain, while the PMs enjoyed another strong rally on May 6th, their recent climb actually makes some fundamental sense: with inflation expectations surging and the U.S. 10-Year Treasury yield failing to participate, the U.S. 10-Year real yield has declined by 12 basis points since Apr. 30. However, with the U.S. 10-Year Treasury yield demonstrating an even wider divergence from the U.S. 10-Year breakeven inflation rate than before the taper tantrum in 2013, once the dam eventually breaks, the former’s flood will likely drown the PMs in the process. (You likely remember very well how fast gold plunged in 2013.)

    Please see below:

    To explain, the green line above tracks the U.S. 10-Year Treasury yield, while the red line above tracks the U.S. 10-Year breakeven inflation rate. If you analyze the left side of the chart, you can see that when the material gap finally filled in 2013, the U.S. 10-Year Treasury yield’s surge was fast and furious. Likewise, if you analyze the right side of the chart, you can see that the gap between the two is even larger now. As a result, with material divergences often reversing in a violent fashion, the next surge will likely be no different.

    To that point, the FED released its semi-annual Financial Stability Report on May 6. An excerpt from the report read:

    “High asset prices in part reflect the continued low level of Treasury yields. However, valuations for some assets are elevated relative to historical norms even when using measures that account for Treasury yields. In this setting, asset prices may be vulnerable to significant declines should risk appetite fall.”

    On top of that, FED Governor Lael Brainard had this to say about the current state of affairs:

    Source: U.S. FED

    For context, a “re-pricing event” means that if the U.S. 10-Year Treasury yield reconnects with the U.S. 10-Year breakeven inflation rate above, we should prepare for an explosion.

    If that wasn’t enough, Boston FED President Eric Rosengren told an audience at the Boston College Carroll School of Management on May 5th that the housing market remains on high alert. For context, the FED currently buys “at least” $40 billion worth of agency mortgage-backed securities (MBS) per month.

    Please see below:

    Source: Bloomberg

    The bottom line?

    With euphoric valuations and surging inflation on a collision course of destruction, even FED officials are sounding the alarm. And with the PMs’ recent rally underpinned by falling real yields and investors’ joyful exuberance, sentiment will sour rather quickly once the FED is forced to reduce liquidity. Case in point: following historical recessions since 1970, the U.S. 10-Year Treasury yield often rallies sharply, consolidates, and then continues its trek higher.

    Please see below:

    Source: Arbor Data Science

    To explain, the orange line above tracks the average performance of the U.S. 10-Year Treasury yield during global recoveries since 1970, while the blue line above tracks the performance of the U.S. 10-Year Treasury yield since August 2020. If you analyze the middle of the chart, you can see that the U.S. 10-Year Treasury yield is likely exiting its consolidation phase and is poised to resume its uptrend.

    Likewise, while the PMs have exuded confidence alongside a largely absent USD Index, history implies that another sharp move higher is approaching fast.

    Source: Arbor Data Science

    To explain, the orange line above tracks the average performance of the USD Index during global recoveries since 1970, while the blue line above tracks the performance of the USD Index since August 2020. If you analyze the middle of the chart, you can see that the greenback’s bounce off of the bottom nearly mirrors the average analogue. Moreover, while fits and starts were present along the way, the USD Index is approaching a period that culminates with further strength.

    And why is this the case?

    Well, because, like most things in life, you can’t have your cake and eat it too. With investors pricing in a future of record GDP growth, perpetual asset purchases by the FED and zero percent interest rates, the goldilocks environment has never occurred in history. For context, when economic growth is strong, increased demand for debt – as businesses increase their capital investments and expand alongside the growing economy – allows lenders to charge higher interest rates. Conversely, when economic growth is weak, decreased demand for debt – as businesses hunker down and preserve capital – forces lenders to offer lower interest rates.

    Thus, with a strong economy supposedly around the corner, the U.S. 10-Year Treasury yield and the USD Index should rise in unison (because higher interest rates increase the fundamental value of the U.S. dollar). However, with “elevated risk appetite” (as Brainard puts it) threatening to swallow the financial system, FED officials are wary about reducing liquidity, rising interest rates and popping the stock market bubble.

    Remember though: history has shown that no matter how hard they try, the house of cards always comes crashing down. Case in point: Lords of Finance: The Bankers Who Broke the World dissects the stock market crash of 1929 and The Great Depression.

    And if you read the excerpt from the book below, notice a familiar policy?

    “The quartet of central bankers did in fact succeed in keeping the world economy going but they were only able to do so by holding U.S. interest rates down and by keeping Germany afloat on borrowed money. It was a system that was bound to come to a crashing end. Indeed, it held the seeds of its own destruction. Eventually, the policy of keeping U.S. interest rates low to shore up the international exchanges precipitated a bubble in the U.S. stock market. By 1927, the Fed was thus torn between two conflicting objectives: to keep propping up Europe or to control speculation on Wall Street. It tried to do both and achieved neither.”

    The bottom line?

    With inflationary pressures akin to propping up Germany in the late 1920s, the FED is torn between rocking Wall Street – which occurred on May 4th when U.S. Treasury Secretary Janet Yellen hinted that interest rates should rise – and allowing inflationary pressures to persist in hopes that they’ll calm down on their own. However, with cost-push inflation born by speculation in the commodities market, a summertime surprise will likely force the FED’s hand.

    As evidence of the European Central Bank’s (ECB) ‘hope-and-pray’ strategy, the ECB published a report on May 6th essentially outlining a myriad of reasons why it should not raise interest rates. And while the policy stance is bearish for the EUR/USD, and therefore, bullish for the USD Index, the reasoning is another example of why once the dam breaks, the flood will be fast and furious.

    Please see below:

    Source: ECB

    Translation?

    As long as inflation expectations are confined to the financial markets and not mirrored by households and businesses, then inflation is synthetic, and raising interest rates will do more harm than good to the economy. However, with the argument flawed on so many levels, history implies that failing to taper creates even more problems down the road.

    Case in point: the Institute for Supply Management (ISM) released its services PMI on May 5th. Quoting an excerpt from the report, I wrote on May 6th:

    “The Prices Index figure of 76.8 percent is 2.8 percentage points higher than the March reading of 74 percent, indicating that prices increased in April, and at a faster rate. This is the index's highest reading since it reached 77.4 percent in July 2008 ….All 18 services industries reported an increase in prices paid during the month of April.”

    And highlighting the significance, notice the strong correlation between the ISM Prices Index and the core Personal Consumption Expenditures (PCE) Index? For context, the core PCE Index is similar to the core Consumer Price Index (CPI). However, the former measures the prices that consumers and nonprofits pay for goods and services and excludes more than just the effects of food and energy.

    Please see below:

    To explain, the light blue line above tracks the year-over-year (YoY) percentage change in the ISM Prices Index, while the dark blue line above tracks the YoY percentage change in the core PCE Index. If you analyze the right side of the chart, you can see that reconnecting with the light blue line implies a core PCE Index reading of roughly 3% (using the scale on the right side of the chart). For context, the last time the core PCE Index hit 3% was January 1992. Thus, while the PMs continue to enjoy the speculative ride higher, once the FED realizes that reducing liquidity is not only the best, but the only course of action, the positivity will likely be short-lived.

    In conclusion, plunging real yields have lit a fire under the PMs, but the rubber band can only stretch so far before it snaps. With inflation bubbling beneath the surface and central banks already diverging in their responses, it’s only a matter of time before long-term yields move meaningfully higher. To that point, with the U.S. 10-Year Treasury yield demonstrating its largest-ever divergence from the U.S. 10-Year breakeven inflation rate, history implies that the reconnection won’t be met with applause by the PMs. Thus, the medium-term outlook remains profoundly bearish, and the PMs often shine their brightest just before the sun sets.

    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 & Silver Trading Alert #2

    May 6, 2021, 11:05 AM

    Available to premium subscribers only.

  • Gold Miners: Are PMs the New Titanic?

    May 6, 2021, 7:55 AM

    Inflation is lurking for investors like a well-hidden iceberg. One false step and there is nothing left but a massive price-drowning.

    With the PMs becoming an ocean of optimistic and pessimistic mood swings, their daily waves have disguised a storm surge that’s building off in the distance. With inflation soaring and one policy error liable to capsize their entire vessel, precious metals investors, like the Titanic, are blindly sailing toward their demise – with a band playing aboard.

    Case in point: while market participants believe that the U.S. Federal Reserve (FED) has the ability to control interest rates, its powers are actually extremely limited. And with the FED’s bark much more vicious than its bite, the central bank has a monopoly on the ‘confidence’ market, not the bond market. Translation? As long as investors believe in the FED’s narrative, the ‘confidence’ filters across financial markets and allows asset prices to reflect the FED’s wishes. However, as history has shown, if that confidence erodes, all bets are off.

    On Apr. 30, I warned that inflationary pressures could force the FED to raise interest rates much sooner than expected.

    I wrote:

    A material Eurodollar options position signals that a hawkish shift could occur by late August. With the options bet expiring on Sep. 10 – right before the FED’s Sep. 22 policy meeting – the date is rather peculiar. But with the FED’s annual Jackson Hole Symposium held in late August – where Powell unveiled a new policy framework for inflation in 2020 and then-FED Chair Ben Bernanke teased more bond purchases in 2012 – this year’s event could result in similar fireworks.

    Please see below:

    Source: Bloomberg/ZeroHedge

    To explain, Eurodollar futures and options are used to speculate on short-term interest rates. More specifically, the contract reflects the implied 3-month U.S. dollar LIBOR (London Interbank Offered Rate). And with Eurodollar futures currently implying roughly five rate hikes by the FED by Mar. 2024 (contract settled at 98.7700 on Apr. 29), the large trader bought Eurodollar put options that imply roughly seven rate hikes by the FED by 2024. As a result, the "extremely high conviction" trade could be a $60 million windfall if Eurodollar futures fall sharply by Sept. 10.

    And with ‘confidence’ beginning to crumble, another 90,000 Eurodollar put options were purchased on May 5, mirroring the 200,000 put-option position that was opened last week. Thus, while a bevy of FED speakers reaffirmed their commitment to quantitative easing (QE) on May 5, investors suddenly aren’t so sure.

    Please see below:

    Hiding in plain sight, cost-push inflation continues to skyrocket. And with speculation in the commodities market showing no signs of slowing down, lumber futures have already surged by nearly 9% this week.

    In addition, it’s not only lumber that’s sounding the alarm. While gold has been the second-worst performing commodity year-to-date (YTD), basic necessities like heating oil and pork products have been on a tear since New Year’s Day.

    Please see below:

    More importantly, though, once the effects of rampant commodity speculation have time to filter through the real economy, the FED’s promise of “transitory” inflation will likely lose credibility.

    Source: IHS Markit/Bloomberg

    If that wasn’t enough, the Institute for Supply Management (ISM) released its services PMI on May 5th. And in what’s become a recurring theme, the report read:

    “The Prices Index figure of 76.8 percent is 2.8 percentage points higher than the March reading of 74 percent, indicating that prices increased in April, and at a faster rate. This is the index's highest reading since it reached 77.4 percent in July 2008 ….All 18 services industries reported an increase in prices paid during the month of April.”

    For context, the ISM requires written permission before redistributing any of its content, and that’s why I quoted the findings rather than included a screenshot of the report. However, if you want to review the source material, you can find it here.

    Continuing the theme, the J.P. Morgan Global Composite Output Index (also released on May 5) rose to its highest level (56.3) in 132 months. For context, the survey tallies responses from roughly 27,000 companies in more than 40 countries that account for roughly 89% of global GDP.

    Please see below:

    More importantly, though, rising commodity costs have already caused output inflation to surge at its fastest pace ever.

    Sources: J.P.Morgan, IHS Markit

    What’s more, Bank of America revealed on May 5th that investors have become increasingly skittish about rising inflation. Case in point: while the inflation risk premium has surged in recent months, we haven’t even scratched the surface of what’s likely to occur once coronavirus restrictions are lifted. And with investors already demanding increased compensation to weather the current storm, more bouts of volatility are likely to erupt over the medium term.

    Please see below:

    To explain, the dark blue bars above (they look gray) track the inflation risk premium. For context, the inflation risk premium represents the additional compensation that investors demand in order to hold assets that are negatively impacted by rising inflation (like long-term bonds and technology stocks). If you analyze the right side of the chart, you can see that investors have already started to doubt the FED’s ability to control the situation. More importantly, though, with Bank of America recommending that investors “shorten duration” – which is finance vernacular for “don’t own long-term bonds or technology stocks” – it’s only a matter of time before we witness another yield spike.

    Source: Bank of America/MarketWatch

    Likewise, J.P. Morgan is also singing a similar tune:

    Source: J.P. Morgan/MarketWatch

    The bottom line?

    While the U.S. 10-Year Treasury yield remains in consolidation mode, it’s important to remember that the U.S. Treasury 10-2 yield spread hasn’t made a new low.

    To explain, when the green line above is rising, it means that the U.S. 10-Year Treasury yield is increasing at a faster pace or declining at a slower pace than the U.S. 2-Year Treasury yield. Conversely, when the green line above is falling, it means that the U.S. 2-Year Treasury yield is increasing at a faster pace or declining at a slower pace than the U.S. 10-Year Treasury yield. In addition, the 10-2 spread is more relevant than analyzing their behavior in isolation because the ‘neutral rate of interest’ has changed dramatically over the last 30 years.

    More importantly, though, after peaking at 1.59% on Mar. 29, the 10-2 spread corrected back to 1.39%. However, with the milestone marking a 20-basis-point decline over 18 trading days, the 10-2 spread’s behavior mirrors what we witnessed in 2001/2002.

    To explain, I wrote previously:

    After reaching an interim peak in 2001, the 10-2 spread declined by 20 basis points over a 17-day stretch. However, the 10-2 spread followed its 2001 swoon by rallying by 105 basis points over the following 97 days (into 2002).

    If you analyze the horizontal red line, 1.30% is where historical roads got a little rocky. However, after recording a major bottom, rallying above 1.30% and then suffering a meaningful correction, the 10-2 spread proceeded to rally to 2.18% (1991), 2.16% (2002) and 2.60% (2008) before suffering a second meaningful correction.

    Thus, while the PMs have enjoyed the U.S. 10-Year Treasury yield’s recent calm, the tranquility is unlikely to last over the medium term. Moreover, while the FED’s gambit of letting the genie out of the bottle is the easy part – by flooding the system with liquidity – putting him back in the bottle is unlikely to happen so smoothly.

    In conclusion, gold moved higher on May 5th, while silver demonstrated relative weakness. And with the upside-down price action highlighting a lack of conviction among precious metals investors, the PMs have become increasingly rangebound. Moreover, with the U.S. 10-Year Treasury yield suffering from a similar affliction, the standoff is likely to continue until one side officially draws their guns. However, with fundamentals favoring the latter, the U.S. 10-Year Treasury yield has a lot more bullets in its chamber. As a result, the FED’s loyalty to liquidity will likely cause the PMs more harm than good over the medium term.

    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

  • NASDAQ: The Leaders Lead. Or Attempt to, and Fail.

    May 5, 2021, 8:50 AM

    The most bearish development for gold came from… the NASDAQ. And no, these are not six typos in a row. Let me explain.

    The tech stocks were the strongest part of the stock market in the previous year or so, and for a good reason. Due to the lockdown-induced surge in remote work, the need for all sorts of tech improvements (in both: software and hardware) soared. So, it’s no wonder that the NASDAQ was the strongest part of the market. It was the sole leader.

    Now, there’s a rule in every market that leaders… Well, lead. This makes perfect sense, no surprise yet. But, there’s a point after which the leaders stop leading and stocks that are relatively weak or have less favorable fundamentals are catching up, eventually rallying more than the leaders. Why would this be the case? Because those who understand the markets and what’s going on are already invested, and those who are neither as knowledgeable nor experienced – the investment public – enter the market.

    The investment public makes purchases often without any regard to fundamentals (or technicals) – they buy because a given asset seems cheap compared to other assets. And what would be cheap in the final part of the upswing – after the market professionals have already established their positions in well-positioned assets? The poorly positioned assets. The stocks/markets that were – for a good reason – neglected previously. So, they start buying those, and the laggards become the new leaders.

    The NASDAQ was the leader that started to underperform while other stocks soared. The last few months were as clear as it gets in terms of emphasizing that. While the S&P 500 Index soared to new all-time highs, the only thing that the tech stocks managed to do was to attempt to break to new highs.

    Attempt.

    And fail.

    Last week’s shooting-star-shaped weekly reversal was bearish on its own, but considering that it was also a failure to break to new highs, the bearish fire got gasoline poured over it.

    Now, this could have been accidental, and it was prudent to wait for another decline before stating that the top in the stock market is most likely in…

    Until we saw yesterday’s slide. The NASDAQ is already over 2% lower this week, and it’s only after two sessions.

    Why is this important? Because if we have indeed seen a major top on the stock market, then it tells us a lot about the next moves on the precious metals market. And – in particular – about mining stocks.

    The history might not repeat itself, but it does rhyme, and those who insist on ignoring it are doomed to repeat it.

    And there’s practically only one situation from more than the past four decades that is similar to what we see right now.

    It’s the early 2000s when the tech stock bubble burst. It’s practically the only time when the tech stocks were after a similarly huge rally. It’s also the only time when the weekly MACD soared to so high levels (we already saw the critical sell signal from it). It’s also the only comparable case with regard to the breakout above the rising blue trend channel. The previous move above it was immediately followed by a pullback to the 200-week moving average, and then the final – most volatile – part of the rally started. It ended on significant volume when the MACD flashed the sell signal. Again, we’re already after this point.

    The recent attempt to break to new highs that failed seems to have been the final cherry on the bearish cake.

    Why should I – the precious metals investor, care?

    Because of what happened in the XAU Index (a proxy for gold stocks and silver stocks) shortly after the tech stock bubble burst last time.

    What happened was that the mining stocks declined for about three months after the NASDAQ topped, and then they formed their final bottom that started the truly epic rally. And just like it was the case over 20 years ago, mining stocks topped several months before the tech stocks.

    Mistaking the current situation for the true bottom is something that is likely to make a huge difference in one’s bottom line. After all, the ability to buy something about twice as cheap is practically equal to selling the same thing at twice the price. Or it’s like making money on the same epic upswing twice instead of “just” once.

    And why am I writing about “half” and “twice”? Because… I’m being slightly conservative, and I assume that the history is about to rhyme once again as it very often does (despite seemingly different circumstances in the world). The XAU Index declined from its 1999 high of 92.72 to 41.61 – it erased 55.12% of its price.

    The most recent medium-term high in the GDX ETF (another proxy for mining stocks) was at about $45. Half of that is $22.5, so a move to this level would be quite in tune with what we saw recently.

    And the thing is that based on this week’s slide in the NASDAQ that followed the weekly reversal and the invalidation, it seems that this slide lower has already begun.

    Wait, you said something about three months?

    Yes, that’s approximately how long we had to wait for the final buying opportunity in the mining stocks to present itself based on the stock market top.

    The reason is that after the 1929 top, gold miners declined for about three months after the general stock market started to slide. We also saw some confirmations of this theory based on the analogy to 2008.

    All in all, the precious metals sector would be likely to bottom about three months after the general stock market tops. If the last week’s highs in the S&P 500 and NASDAQ were the final highs, then we might expect the precious metals sector to bottom in the middle of the year – in late July or in August.

    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 Behaves Like an Upset Friend - It’ll Get Over It

    May 4, 2021, 9:06 AM

    Based on gold’s recent behavior, mood swings cannot be ruled out, but hormone levels are going to level off after the end of the market holidays.

    Gold rallied visibly yesterday (May. 3) as the USD Index gave away some of Friday’s gains, sparking questions about whether this is actually bullish for gold. And rightfully so, after all, if a given market reacts to what it shouldn’t react to, it often tells us that the market wants to move in a certain direction. Let’s start with one of the questions I received:

    Hi,

    Thanks very much for your detailed reports. I just have a few observations and queries. On Friday we had the USD going up and Gold dropping a few dollars. Today we have again the USD continuing to go up, which is what you have been saying in your reports, but we also have Gold up $10. If you could help me understand why this is happening and how it fits into Gold going down as the USD goes up.

    Thanks very much.

    Let’s imagine that you’re about to go fishing with your friends, but you can’t ignore the fact that one of your friend’s behavior is odd, to say the least. While they’re usually fine with your selection of the fishing spot and the time you arrived, today they are annoyed by both. They don’t even like the road that your GPS system set for the drive, not to mention your driving skills. Whatever you say, it makes them complain. You might be tempted to think that this person is actually not that friendly at all and perhaps this friendship’s status has changed.

    But… What actually happened was they were up all night as their heater broke, spilling water on the entire apartment, and since it was this friend that insisted on mounting it themselves, they didn’t want to brag about this result. They also didn’t have time to eat anything before they met with you this morning.

    What is obvious based on the context might have been very misleading without it.

    It seems to me that we have the same kind of situation in gold right now. The context here is that it’s the very final part of the consolidation – the right shoulder of a broad head-and-shoulders pattern, and, at such tops, markets can behave erratically.

    Based on the identical blue rectangles, it seems that we might have seen the end of the correction.

    The breakdown below the short-term support line – along with its confirmation – provides us with bearish indications as well.

    Did gold manage to break to new highs yesterday? No. So, did it change anything from the technical point of view? No, once again.

    The only thing that might seem bullish here is gold’s performance relative to the USD Index, but if it is indeed the very end of the correction, then this kind of performance might be understandable. After all, that’s where the emotions are at the zenith.

    Moreover, let’s keep in mind that yesterday was a bank holiday in some parts of the world, including one of the world’s financial centers – London. If there are any days during the year when the markets are much more likely to behave erratically than on other days, it’s during market holidays and options’ expiration days. We had the former yesterday.

    The performance of some stock market indices seems to confirm that. For example, the Nasdaq (the previous strong leader) declined yesterday, while the broad market ended the day slightly higher (yesterday’s session in the S&P 500 was another daily reversal, though).

    And how could that fit the situation in the USD Index?

    Well, the USDX is after a massive breakout, which means that it’s no wonder it corrected the move yesterday. And as it did, it’s also no wonder that gold traders assumed the USD’s rally was over. But the interpretation of the situation is likely to change as the USDX is moving back up today, and it seems that it’s about to confirm its breakout.

    Now, if the USD Index keeps rallying for days and gold continues to show strength for days, we might be on to something bullish here. For now, it’s too early to say that.

    Moreover, the gold-USD dynamic is not the only one that matters. While the links between gold and the USD Index as well as between gold and gold stocks often require confirmations, silver’s outperformance of gold is something that we usually see on a very short-term basis, and it’s an important sell signal without additional confirmations.

    And while gold moved close to the recent highs but didn’t exceed them, silver moved visibly above them.

    The silver price just outperformed gold on a very short-term basis, which is a great confirmation that yesterday’s session could have been the emotional peak – or a session that’s very close to such a peak.

    While silver outperformed, miners underperformed.

    Silver moved above its recent high, gold moved very close to it without breaking higher, and mining stocks didn’t move close back to the said highs. Consequently, gold stocks have underperformed gold.

    Overall, the implications from the relative performance appear more bearish than bullish at this time, and they support other bearish factors that I’ve been discussing in my previous analyses.

    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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