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Dollar Bears Are Pushing Their Narrative. Will It Stick?

January 14, 2022, 9:22 AM Przemysław Radomski , CFA

Briefly: in our opinion, full (300% of the regular position size) speculative short positions in junior mining stocks are justified from the risk/reward point of view at the moment of publishing this Alert.


Welcome to this week's flagship Gold & Silver Trading Alert. As we promised you earlier, in our flagship Alerts, we will be providing you with much more comprehensive and complex analyses (approximately once per week).

Predicated on this week’s price moves, our most recently featured outlook remains the same, as the price moves align with our expectations. On that account, there are parts of the previous analysis that didn’t change at all in the earlier days, which will be written in italics.

Let’s start with a quick review of the key fundamental news that has hit the market so far this week.

The Week (Almost) Ended Jan. 13

With the NASDAQ Composite’s volatility forcing stock market investors to ride an unpleasant roller coaster, Big Tech has gone from euphoric to despondent. With U.S. Treasury yields seeking higher ground and six Fed officials signaling upcoming rate hikes, it’s been an eventful week across the financial markets.

Moreover, while the USD Index has lost some steam and the PMs have benefited, the fundamentals don’t support the former’s decline. Likewise, with robust technicals also underpinning the USD Index’s medium-term outlook, a reversal of this week’s weakness should occur sooner rather than later.

Medium-Term Gold Fundamentals

After the U.S. 10-Year Treasury yield surpassed its 2021 high, the benchmark has consolidated in recent days. However, with the gap between the U.S. 10-Year Treasury yield and the U.S. 10-Year breakeven inflation rate slowly narrowing, a reconnection could have a profound impact on the PMs.

For example, if (once) the two lines reconnect, the development will likely send shockwaves across the precious metals market.

To explain, I wrote on May 11:

The gold line above tracks the London Bullion Market Association (LBMA) Gold Price, while the red line above tracks the inverted U.S. 10-Year real yield. For context, inverted means that the latter’s scale is flipped upside down and that a rising red line represents a falling U.S. 10-Year real yield, while a falling red line represents a rising U.S. 10-Year real yield.

If you analyze the left side of the chart, you can see that when the U.S. 10-Year Treasury yield began its move to reconnect with the U.S. 10-Year breakeven inflation rate in 2013 (taper tantrum), the U.S. 10-Year real yield surged (depicted by the red line moving sharply lower). More importantly, though, amidst the chaos, gold plunged by more than $500 in less than six months.

Over the medium-to-long term, the copper/U.S. 10-Year Treasury yield ratio is yet another leading indicator of gold’s future behavior.

I wrote previously:

When the copper/U.S. 10-Year Treasury yield ratio is rising (meaning that copper prices are rising at a faster pace than the U.S. 10-Year Treasury yield), it usually results in higher gold prices. Conversely, when the copper/U.S. 10-Year Treasury yield ratio is falling (meaning that the U.S. 10-Year Treasury yield is rising at a faster pace than copper prices), it usually results in lower gold prices.

If you analyze the chart below, you can see the close connection:

Moreover, after recording three failed attempts to run away from the copper/U.S. 10-Year Treasury yield ratio in 2021, gold fell hard. Likewise, with the ratio gunning for its 2021 lows and implying a gold futures price of roughly $1,650, more downside likely lies ahead for the yellow metal.

Please see below:

Finally, the S&P GSCI (the commodity index) has decoupled from the U.S. 10-Year Treasury yield. And with the former moving in near lockstep with the latter since 2015, a reversal of the imbalance could increase the PMs’ troubles over the medium term.

On the flip side, if we extend our time horizon, there are plenty of fundamental reasons why gold is likely to soar in the coming years. However, even the most profound bull markets don’t move up in a straight line, and corrections are inevitable.

As it relates to the precious metals, a significant correction (medium-term downtrend) is already underway. However, the pain is not over, and a severe climax likely awaits.

For context, potential triggers are not always noticeable, and the PMs may collapse on their own or as a result of some random trigger that normally wouldn’t cause any major action. However, a trigger will speed things up, and that’s where the S&P 500 comes in:

Stock Market Signals

After the NASDAQ Composite sold-off again on Jan. 13, the tech-heavy index still can’t hold its mid-2021 highs. With the benchmark struggling to gain any real traction in recent months, the previous leaders have now become laggards. As a result, while the short-term is still up in the air, the medium-term outlook is profoundly bearish.

For context, it’s unclear when the general stock market will record its final top. However, the PMs can still decline without the NASDAQ Composite or the S&P 500’s help. Keep in mind, though: the PMs’ 3-3.5 month clock will likely have drastic implications once reality arrives:

The PMs’ 3-3.5-month clock is ticking once again. However, please note that if the new Covid-19 variant makes the vaccines ineffective, we’re back to 2020 in a way, and things moved very quickly at that time. In this case, the 3-3.5 month period could be viewed as the “maximum” time for the decline to materialize, while things could end (the final bottom could be in) much sooner.

For more on the strong connection between the NASDAQ Composite and mining stocks, I wrote previously:

To explain, with mining stocks’ peaks often preceding the NASDAQ’s, the current price action is ominously similar to what we witnessed before the dot-com bubble burst. And while timing still remains uncertain, it’s important to remember that the XAU Index hit new all-time lows in 2000. As a result, mining stocks are likely far from a lasting bottom, and their 2021 weakness has likely been an appetizer and not the main course.

Please see below:

What’s more, the NASDAQ Composite’s MACD indicator continues to move lower (see the bottom half of the chart below). A similar development occurred before the crash in 2000, and back then, mining stocks suffered mightily as the NASDAQ Composite unravled. For more on the connection between the NASDAQ Composite and mining stocks, I wrote previously:

The PMs are ominously intermingled with the performance of Big Tech. For example, when the NASDAQ Composite fell off a cliff in 2000, the XAU Index plunged by more than 50%. And with today’s warning signs strikingly similar to its predecessors, another Minsky Moment could wreak havoc on the PMs.

With the MACD indicator recording an epic sell signal, the extreme reading can only be rivaled by the peak of the dot-com bubble.

While history might not repeat itself, though it does rhyme, 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.

For context, mining stocks’ current downtrend remains similar to the price action in 2000. While the current decline in mining stocks is not as sharp as in 2000, the NASDAQ Composite’s current rally isn’t as sharp either. Thus, the implications from the analog remain intact:

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. Consequently, we might see the next major bottom – and the epic buying opportunity in the mining stocks – about three months after the general stock market tops. The NASDAQ might have already topped, so we’re waiting for the S&P 500 to confirm the change in the trend.

The bottom line?

New lows are likely to complete the GDX ETF’s bearish H&S pattern and set the stage for an even larger medium-term decline. And if the projection proves prescient, medium-term support (or perhaps even the long-term one) will likely emerge at roughly $21.

But why ~$21?

  1. The target aligns perfectly with the signals from the GDX ETF’s 2020 rising wedge pattern. You can see it in the left part of the above chart. The size of the move that follows a breakout or breakdown from the pattern (breakdown in this case) is likely to be equal (or greater than) the height of the wedge. That’s what the red dashed line marks.
  2. The broad head-and-shoulders pattern with the horizontal neckline at about $31 points to the $21 level as the likely target.

Confronting a similar calamity, the S&P 500 is also living on borrowed time. For example, the benchmark continues to track its ominous 2019/2020 path, and with the liquidity drain underway and the Omicron variant upending U.S. economic activity, the S&P 500 will likely confront a Minsky Moment sooner rather than later.

Furthermore, with Big Tech dragging down the S&P 500, the latter’s peak may also materialize in the near future. To explain, the S&P 500’s breakout above the 2021 highs has been invalidated, and the index keeps selling off when it attempts to reclaim its past glory. As a result, investors are unwilling to deploy new capital at these extreme valuations.

Again: while the stock market is an important variable in the PMs’ bearish thesis, gold, silver, and mining stocks can still decline without the help of the S&P 500. Thus, whether the stock market remains buoyant or not, the milestone is unlikely to stop the PMs from suffering sharp drawdowns over the medium term.

For more context on the S&P 500’s 2019/2020 price action, I wrote previously:

The S&P 500’s two initial corrections in 2019 (before the March 2020 crash) are ominously similar to the two initial corrections in late 2020/early 2021. I marked those price moves with green rectangles on the below chart. Likewise, the mini-melt-up that followed in 2021 also mirrors the S&P 500’s late 2019/early 2020 surge. Thereafter, another sharp correction followed in 2020 before the S&P 500 reached its final high. Then, not long after that, the March 2020 crash occurred, and the current setup is profoundly similar. As a result, another sharp decline will likely catch many market participants by surprise.

Moreover, while the coronavirus pandemic helped induce the sharp selling in March 2020, this time around, a resurgent U.S. dollar could act as the major catalyst. With a stronger greenback reducing the competitiveness of U.S. exporters, the USD Index’s likely uprising could pressure corporations’ profitability and result in a material re-rating of U.S. stocks.

Likewise, while the S&P 500’s current rally is larger than what we witnessed in 2020, the roadmap that got us here is profoundly similar. Plus, with the S&P 500’s RSI (Relative Strength Index) closing above 72 on Nov. 5, overbought conditions should elicit a sharp correction sooner rather than later. Please note that that’s the condition that makes the current situation comparable to what we saw in early 2020. The areas marked with red rectangles on the below chart are similar.

As for the S&P 500’s impact on the PMs, silver and mining stocks are some of the worst performers when volatility strikes the general stock market. And with mining stocks’ recent bout of optimism underwritten by the S&P 500’s recent rally, when market participants ‘panic buy’ everything in sight, they often gobble up the major laggards (with the goal of capitalizing on potential mean reversion). Moreover, with silver and mining stocks some of the worst-performing assets YTD, the optimism helped uplift these laggards.

However, with the upswings largely driven by sentiment and not fundamental or technical realities, silver and mining stocks’ rallies are unlikely to hold over the medium term. Furthermore, it’s important to remember that cheap assets are often cheap for a reason. And with the marginal buyers of silver and mining stocks buying momentum and not medium-term technicals or fundamentals, they’ll likely end up holding the bag when sentiment reverses once again.

In other words, it was probably buying from the general public that helped to lift gold stocks higher – the kind of investors that enter the market at the end of the upswing, buying what’s cheap regardless of the outlook. And that’s also the kind of investors that tends to lose money…

As a result, once the S&P 500 suffers a sharp re-rating, the PMs (especially the junior miners – e.g., the GDXJ ETF) will likely fall precipitously amid the chaos.

For more context, I wrote previously:

With its RSI mirroring the bearish behavior that we witnessed in 2019/2020 – though five moves are present this time, while two moves were present back then – the S&P 500 remains on a collision course lower. For context, similar behavior led to explosive drawdowns in early 2020 and in the second half of 2018. Moreover, with the Fed turning a bit more hawkish in recent weeks, volatility will likely erupt once the central bank’s taper timeline is finally revealed.

On top of that, the shape, the movement, and the drawdowns that occurred along the way during the S&P 500’s 2018-2020 rally all mirror today’s price action. To explain, the self-similar pattern from 2018-2020 saw the S&P 500 peak once the index rose slightly above the 1.618 Fibonacci extension level based on the size of the initial rally. On the above chart, you can see this as a move to the highest retracement in April 2019 – the full size of the rally compared to the 61.8% retracement is actually 1.618 of the initial rally, because 1 / 0.618 = ~1.618 (the Phi number).

And with the S&P 500 slightly exceeding this extension-based target on Aug. 13, we may have already witnessed the top. Back in 2020, the S&P 500 closed slightly above this level prior to the crash, and with an identical development playing out today, another drawdown could be right around the corner.

Keep in mind though: the PMs’ forthcoming slide is independent (and has been) of the performance of the general stock market – at least with regard to the existence of the PMs’ slide. However, due to the cross-asset implications and the interconnectedness of the financial markets, a severe correction of U.S. equities will likely supercharge the pace of the PMs’ implied decline (especially silver and mining stocks). If stocks continue to rally, PMs will likely still decline, but at a regular pace. As an example, we witnessed that behavior on Aug. 6. Even though the S&P 500 ended the day in the green, the PMs declined significantly.

For context, the precious metals used to bottom about 3 – 3.5 months after the top in the general stock market in some of the similar cases, for instance, in 1929. And with both major indices remaining resilient, the timeframe of the PMs’ final trough is still up in the air.

If – based on the analogy to 2013 that I’ll discuss later today – a bottom for the PMs materializes in December 2021 and (reverse engineering the forecast) the stock market peaks 3 – 3.5 months in advance, the top may be in (if the 1929 analogy holds — it could also be about a month away). As a result, if the general stock market continues its slide, it will further validate the thesis that the PMs will likely bottom in December.

For more context:

Why should we – precious metals investors and traders – be concerned with the performance of stocks? Because when stocks finally top and start to decline, it will likely make the decline in the precious metals market much more severe. For one, identical developments occurred in 2008, 2020 and 1929. Second, the precious metals often bottom about 3 – 3.5 months after the top in the general stock market. Third, the S&P 500’s 2020 analogue is becoming even more valid by the day.


The markets are self-similar (which is another way of saying that they have a fractal nature), which generally means that while the history tends to rhyme, it also tends to rhyme in similar shapes of alike or various sizes.

For example, the rally from 2018–2020 seems very similar to the rally from 2020 to the present. Both rallies started after a sharp decline, and the first notable correction took the form of back-and-forth trading around the previous high. I marked those situations with big rectangles.

Then the rally continued with relatively small week-to-week volatility. I created rising support lines based on the final low of the broad short-term consolidation and the first notable short-term bottom.

This line was broken, and some back-and-forth trading followed, but it was only about half of the previous correction in terms of price and time.

Then, we saw a sharp rally that then leveled off. And that was the top. The thing that confirmed the top was the visible breakdown below the rising support line right after stocks invalidated a tiny breakout to new highs. That’s what happened in February 2020, and that’s what seems to be taking place right now.

Back in 2020, the rally ended when the weekly RSI moved above 70 once again and when the S&P moved slightly to its new highs. While the history doesn’t have to repeat itself to the letter, if we see another small move higher – to new highs – that also takes the RSI above 70, please keep in mind that it’s not really a bullish development, but actually history forming its final rhyme. And the implications appear bearish for the precious metals sector, as it’s likely to be hit by the first wave of stock market declines – just like it was the case in 2008, 2020, and… 1929.

Also noteworthy, the MSCI World Index (ex-USA) has invalidated its attempt at new highs and the bearish signals continue to mount. For example, the index is lower now than it was seven days ago, and the signals from the pattern are still present as of Jan. 13. For context, I explained the ominous implications on Nov. 30. I wrote:

Something truly epic is happening in this chart. Namely, world stocks tried to soar above their 2007 high, they managed to do so and… they failed to hold the ground. Despite a few attempts, the breakout was invalidated. Given that there were a few attempts and that the previous high was the all-time high (so it doesn’t get more important than that), the invalidation is a truly critical development.

It's a strong sell signal for the medium- and quite possibly for the long term.

From our – precious metals investors’ and traders’ – point of view, this is also of critical importance. All previous important invalidations of breakouts in world stocks were followed by massive declines in the mining stocks (represented by the XAU Index).

Two of the four similar cases are the 2008 and 2020 declines. In all cases, the declines were huge, and the only reason why they appear “moderate” in the lower part of the above chart is that it has a “linear” and not “logarithmic” scale. You probably still remember how significant and painful (if you were long that is) the decline at the beginning of 2020 was. 

Now, all those invalidations triggered big declines in the mining stocks, and we have “the mother of all stock market invalidations” at the moment, so the implications are not only bearish, but extremely bearish.

What does it mean? It means that it is time when being out of the short position in mining stocks to get a few extra dollars from immediate-term trades might be risky. The possibility that the omicron variant of Covid makes vaccination ineffective is too big to be ignored as well. If that happens, we might see 2020 all over again – to some extent. In this environment, it looks like the situation is “pennies to the upside and dollars to the downside” for mining stocks. Perhaps tens of dollars to the downside… You have been warned.

Furthermore, the broker-dealer index’s (XBD) previous intraweek reversal was similar to the developments that preceded the 2020 crash. On top of that, the index still showcases a flat-top pattern that was present prior to the 2020 swoon (though, now, on a much larger scale). To that point, while this week’s intraday high superseded the intraday high from late 2021, a reversal followed. Quite ominously, a similar reversal preceded the 2020 plunge.

As a result, the pattern continues to elicit bearish undertones, and the financial sector may end up leading the general stock market lower.

Please see below:

For context, I wrote previously:

One of the canaries in the coal mine is the financial sector. It indicated the 2020 slide by forming a relatively flat top and underperforming other stocks. That preceded the 2008 slide as well. Well, we’re seeing the financials underperforming once again. While the S&P 500 moved to new highs last week, the financial sector is more or less where it was in early March, below its June highs.

The bottom line?

It seems that history is indeed forming its final rhyme. However, can we start the 3-3.5-month countdown now? Well, while timing remains uncertain, the main drivers of the stock market’s success are beginning to sputter. With inflation running hot and employment likely to surge in the coming months (once enhanced unemployment benefits expire), all of the boxes should be checked for the FED to taper its asset purchases. And with investors largely averse to a reduction in liquidity, the outcome could have a profound impact on both the general stock market and the PMs.

Keep in mind though: a decline in stocks is not required for the PMs to decline. But a break in the former could easily trigger a sell-off in the latter, and if history decides to rhyme again, silver and the miners will be the hardest hit.

All in all, while the general stock market’s 3.5-month timer for the final bottom has been reset, that doesn’t mean the precious metals market can’t bottom sooner. This simply increases the chance it will take an extra 3.5 months after it becomes clear that what we saw was indeed the top in stocks.

Furthermore, the PMs may continue to decline without the S&P 500’s help. After all, when the tapering was announced in 2013, stocks eventually moved higher, while the GDXJ ETF’s downtrend persisted for two more years. Thus, while the 3.5-month timeline may have been delayed, the overall implications remain unchanged.

Moreover, the recent strength in the GDXJ ETF mirrors what we witnessed in 2013. For example, when the taper officially began, junior miners rallied for several months before rolling over and falling hard. And although the fits and starts were present along the way in 2013, the GDXJ ETF still lost 36% of its value relative to the low that was set at the outset of the taper.

As a result, the current rally is likely to be a corrective upswing within a medium-term downtrend, and excessive optimism should turn to pessimism over the next few months. Moreover, what we saw recently is yet another rhyme in the history books, and the implications are not bullish but bearish.

And no, it doesn’t have to take several months before mining stocks top and resume their downtrend. After all, history tends to rhyme, not repeat itself to the letter. And with a soaring USD Index and the general stock market that could slide any day or week now, we may not have to wait long for a very big decline in mining stocks.

To that point, one of our subscribers asked an important question about the implications of the chart below. In short: while the GDXJ ETF initially rallied following the commencement of the 2013 taper, it’s important to remember that the 2021 taper will likely occur at warp speed. For example, Chairman Jerome Powell announced on Dec. 15 that he would double the pace of the current taper, and, for context, the initial pace was already faster than in 2013. Thus, the 2021 liquidity drain is much more hawkish than in 2013.

On top of that, the Fed didn’t raise interest rates until the end of 2015. However, this time around, rate hikes could begin at or before mid-2022 (soon after the taper concludes). As a result, the GDXJ ETF should find that QE’s death in 2021/2022 is much harsher than in 2013/2014.

For your reference, here is the Q&A:

Q: Hi PR,
I hope you are doing well. Thanks for your fantastic newsletters. I think it was a great move to change the flagship newsletters to Fridays; it gives us more time to digest it. I have a question for you. You mentioned in Monday’s newsletter that back in 2013, when the taper began, junior miners rallied for several months before rolling hard. Based on how the Fed is cornered currently, do you think they'll mention exactly when and how fast they'll taper? Do you think the same will happen with the junior miners this time – that they'll rally before coming down hard? Let’s say PR would like to add more to the position in gold miners… Would he add to it right now or wait after the FOMC meeting?

A: Thanks, I’m happy that you liked my idea. In a way, it’s a move back to what already worked in the past. Years ago, I published “Premium Updates” on Fridays, which were the main part of the service.

As far as the Fed’s tapering is concerned, I wouldn’t necessarily believe that they would stick to their stated pace of tapering, and instead, if they see higher inflation numbers once again, they might speed it up once again (or more than once). So, even if they mention how fast they’ll taper, I think we can easily get an update or more updates on that pace.

I think that this time, junior miners won’t correct as high and for as long as they did in 2013. It could also be the case that the corrective upswing is already behind us. The situation is changing faster (the Fed is becoming hawkish faster) than in 2013. The fundamentals kind of align with the technicals here – the current situation is somewhat between what we saw in 2008, 2013, and (if the Omicron variant of the coronavirus makes vaccines ineffective) early 2020.

If I wanted to add more (short) positions in mining stocks, I’d do it right now. I wouldn’t wait for the FOMC or try to guess what other piece of news might trigger the decline or the rebound. Of course, this is not investment advice. I can’t say with certainty if the above is a good approach for the person who asked this question or anyone else.

The USD Index (USDX)

While the USD has a slight cold and is sitting out this inning, the precious metals are enjoying some sun. But for how long before the tables turn?

While six Fed officials warned of forthcoming rate hikes and signaled that the March meeting could result in liftoff, the USD Index responded like they had announced another round of QE. What does it give?

Well, with the U.S. dollar stuck in consolidation mode after its recent sprint higher, gold, silver, and mining stocks have enjoyed the pullback. However, since the charts provide the most accurate clues regarding the future price action, the technicals signal that the USD Index’s weakness should be short-lived.

For example, while unfulfilled prophecies of the dollar’s demise in 2021 have been resurrected in 2022, the USD Index rallied off of expected support. After declining intraday on Jan. 13, the dollar basket reversed higher and ended the day with a bullish hammer candle. Moreover, the USD Index closed above its rising support line (the dashed line below) and its September 2020 high. As a result, the dollar found support near the levels that I outlined on Jan. 13. I wrote:

At the beginning of 2021, I wrote that the year was likely to be bullish for the USD Index, and my forecast for gold (and the rest of the precious metals sector) was bearish – against that of almost every one of my colleagues.

The USD Index ended 2021 about 6% higher, gold was down about 3.5%, silver was down almost 12%, the GDX ETF was down by about 9.5%, and the GDXJ ETF (proxy for junior mining stocks, my primary tool for shorting the precious metals sector in 2021 – I wasn’t shorting gold at any point in 2021) was down by about 21%.

What about this year? It’s a tough call to say how the entire year will go, but it seems to me that the USD Index will move higher, and we’ll see both in the PMs: a massive decline, and then a huge rally. It’s very likely to be a year to remember for anyone interested in trading gold, silver, and/or mining stocks and/or investing in them.

The USD Index declined to fresh 2022 lows – well below the previous January lows, and also below the December and late-November lows.

We see that the USD Index just (in overnight trading, so the move is not even close to being confirmed) moved a little below USDX’s rising support line based on the previous June and October 2021 lows. At the same time, the USDX is slightly below its late-2020 top and slightly above its November 2021 top.

In light of the situation on the long-term USDX chart, this combination of support levels is likely to trigger a rebound and the continuation of the medium-term rally.

Please see below:

Moreover, if we zoom out and focus our attention on the USD Index’s weekly chart, an interesting pattern has developed. To explain, when the dollar basket’s weekly RSI (based on the weekly price changes) hit 70, I wrote the following:

Also, please note that the recent medium-term rally has been calmer than any major upswing witnessed over the last 20 years, where the USD Index’s RSI has hit 70. I marked the recent rally in the RSI with an orange rectangle, and I did the same with the second-least and third-least volatile of the medium-term upswings.

The sharp rallies in 2008 and 2014 were of much larger magnitudes. And in those historical analogies, the USD Index continued its surge for some time without suffering any material corrections.

As a result, the short-term outlook is more of a coin flip.

Consequently, the current decline is not unexpected – it’s rather normal.

I marked additional situations on the chart below with orange rectangles – these were the recent cases when the RSI based on the USD Index moved from very low levels to or above 70. In all three previous cases, there was some corrective downswing after the initial part of the decline, but once it was over – and the RSI declined somewhat – the big rally returned and the USD Index moved to new highs.

I marked those declines in the RSI with blue rectangles, and I did the same thing for the current decline. As you can see, the size of the move lower is currently analogous to previous short-term corrections that were then followed by higher prices. This means that it’s quite likely over or very close to being over, and the medium-term rally can return any day now.

Please see below:

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

Continuing the theme, the eye in the sky doesn’t lie. And with the USDX’s long-term breakout clearly visible, the wind remains at the dollar’s back. Furthermore, dollar bears often miss the forest through the trees: with the USD Index’s long-term breakout gaining steam, the implications of the chart below are profound. And while very few analysts cite the material impact (when was the last time you saw the USDX chart starting in 1985 anywhere else?), the USD Index has been sending bullish signals for years.

Please see below:

The bottom line?

With my initial 2021 target of 94.5 already hit, the ~98 - 101 target is likely to be reached over the medium term (and perhaps quite soon), mind, though: we’re not bullish on the greenback because of the U.S.’ absolute outperformance. It’s because the region is fundamentally outperforming the Eurozone, the EUR/USD accounts for nearly 58% of the movement of the USD Index, and the relative performance is what really matters.

In conclusion, 2022 looks a lot like 2021: dollar bears are out in full force and the ‘death of the dollar’ narrative has resurfaced once again. However, with the greenback’s 2021 ascent catching many investors by surprise, another re-enactment will likely materialize in 2022. Moreover, since gold, silver, and mining stocks often move inversely to the U.S. dollar, their 2022 performances may surprise for all of the wrong reasons. As such, while the dollar’s despondence is bullish for the precious metals, a reversal of fortunes will likely occur over the medium term. Given yesterday’s reversal in the USD Index, it’s likely also from the short-term point of view – we could see the reversal and the return of the USD’s rally and PMs’ decline any day or hour now.

The NASDAQ 100

As a secondary catalyst, a material drawdown of the NASDAQ 100 could eventually rattle U.S. equities.

Please see below:

To that point, while the USDX and the NASDAQ 100 have declined in unison recently, a true bout of fear could propel the greenback back to its March highs. Moreover, following a short-term consolidation, the USDX could even exceed those previous highs.

Furthermore, relative outprinting by the European Central Bank (ECB) remains of critical importance. And while the EUR/USD attempts to rally, the Fed/ECB ratio is still moving lower. Thus, both should decline over the medium term.

Please see below:

The key takeaway?

With the ECB injecting more liquidity to support an underperforming Eurozone economy, the FED/ECB ratio, as well as EUR/USD, should move lower over the medium term. More importantly, though, because the EUR/USD accounts for nearly 58% of the movement of the USD Index, EUR/USD pain will be the USDX’s gain.

In addition, the top in the FED/ECB total assets ratio preceded the slide in the EUR/USD less than a decade ago, and it seems to be preceding the next slide as well. If the USD Index was to repeat its 2014-2015 rally from the recent lows, it would rally to 114. This level is much more realistic than most market participants would agree on.

Very Long-Term Indications for Gold

If you’ve been paying close attention to my flagship Gold & Silver Trading Alerts, you know that this quote has been present for months:

With another month on the books and gold’s back-and-forth behavior whipsawing investors’ emotions, it’s important to remember that the long-term thesis remains intact: the MACD indicator still elicits a strong sell signal and gold’s monthly close has not changed the calculus.

What’s more, while prophecies of new all-time highs circulated throughout the financial markets recently, I warned that the ‘new narrative’ is the only thing that has changed. I wrote on Nov. 22:

Even as gold’s rally gained steam last week, the long-term MACD indicator didn’t budge. It’s still sending the same sell signal and the indicator is a reliable predictor of gold’s medium to long-term performance. Moreover, the current reading mirrors what we witnessed in 2013, and gold’s monthly RSI (Relative Strength Index) is also at a similar level (slightly above 50).

Thus, both data points suggest that gold’s current upswing is much more semblance than substance. As a result, the PMs’ outlook remains very bearish over the next few months.

To that point, the slight pause in the MACD indicator mirrors its behavior in 2012-2013. As a result, the previous rally was likely the final pause before gold slides to new lows.

To explain this in detail, I wrote previously:

With the month of June now on the books, the MACD indicator is still flashing red. And despite gold’s recent strength and all of the attention that has come with it, the MACD indicator has barely flinched. Furthermore, while a slight pause in the MACD indicator’s downtrend is clearly visible, an identical development also occurred in mid-2012. And what happened then? Well, if you analyze the chart below, you can see that gold’s joy quickly turned into sadness, and the yellow metal suffered a profound decline.

Even eerier, the MACD indicator’s recent pause has occurred at a level that also mirrors the analogue from 2012. And what happened back then? The yellow metal plunged by more than $600 before the bottom was finally reached. Likewise, the current position of the MACD indicator is also symmetrical to the 2008 top. And back then – during the Global Financial Crisis (GFC) – the yellow metal plunged by more than $334 from peak to trough (over 30%).

While short-term price movements often garner the most attention, it’s important to remember that gold’s long-term downtrend is also reminiscent of the second half of 2012. If you analyze the middle-right area of the chart below, you can see that the MACD indicator sounded the alarm in 2012. And while investors ignored the warning and gold moved higher, a profound plunge followed in 2013. Moreover, while the MACD indicator’s sell-signal was visible throughout gold’s entire journey – despite several ebbs and flows in the price action – the narrowing distance between the black and red lines actually preceded gold’s plunge. Thus, with gold’s swan song beginning to play at nearly the same level in 2013, the yellow metal’s recent strength is likely only the intermission.

The above-mentioned narrowing distance between the MACD lines can be seen clearly seen through the blue bars hovering around the 0 level on the indicator part of the chart. We now see the current blue bar move toward 0. We saw the same thing in the second half of 2012, which is when gold rallied for the last time before the huge slide.

Remember the huge gap between the U.S. 10-Year Treasury yield and the U.S. 10-Year breakeven inflation rate? The situation in the very long-term MACD indicator is yet another confirmation that what we saw recently is similar to what we saw before the huge 2012 – 2013 slide. We get the same confirmation from the gold to bonds ratio, and I’ll move to that a bit later.

Moreover, with the situation unfolding as it did in 2012, the recent pause in the MACD indicator has been followed by a continued move lower. And while we’re still in the early innings of the PMs’ likely slide, the analogue is, unsurprisingly, playing out as expected. To that point, despite last week’s rally, gold’s long-term MACD indicator hasn’t flinched. And with that, the yellow metal’s recent strength is largely immaterial from a long-term perspective.

Based on gold’s previous performance after the major sell signals from the MACD indicator, one could now expect gold to bottom in the ~$1,200 to ~1,350 range. Given the price moves that we witnessed in 1988, 2008 and 2011, historical precedent implies gold forming a bottom in this range. However, due to the competing impact of several different variables, it’s possible that the yellow metal could receive the key support at a higher level.

Considering the reliability of the MACD indicator as a sell signal for major declines, the reading also implies that gold’s downtrend could last longer and be more severe than originally thought. As a result, $1,500 remains the most likely outcome, with $1,350 still in the cards.

Moreover, if we zoom in on gold’s weekly chart, I warned on Nov. 15 that two triangle-vertex-based reversal points signaled more weakness ahead.

I wrote:

Please remember that the triangle-vertex-based reversals can work on a near-to basis, and not necessarily on an exact basis. This means that the lack of decline last week, doesn’t mean that one is not coming. Conversely, the important point is that not one, but two triangle-vertex-based reversal points are already in place, and it’s likely only a matter of time before the reversals commence. As a result, while gold rallied above its declining resistance line last week, another invalidation likely lies ahead.

After the sharp weekly decline previously, the move showcased the reliability of the indicator.

Moreover, while gold continues its back-and-forth movement, the price action has become narrower and narrower. Ss the yellow metal’s trading range shrinks, the development often precedes profound price moves.

The 2020-2021 decline was significant, the following 2021 (ended in mid-2021) rally was smaller, the subsequent decline (to the August low) was not bigger, then the following rally (to the late-2021 high) was smaller than the above-mentioned moves, then the decline from the late-2021 high to the late-2021 low was even smaller, and then the rally to the December high was even smaller.

As a result, declining volatility is bearish, not bullish, and the false sense of security is lulling investors to sleep. It is precisely the other way around. Very low volatility is exactly what tends to precede periods of high volatility. As the price breaks out either way, the previously “sleeping” investors are desperate to get out of a losing position and they add to the move that they are trying to avoid.

In the current situation, it’s very likely that the first really big (in terms of hundreds of dollars) price move will be to the downside.

Thus, another daily flash crash could materialize sooner rather than later.

Please see below:

Likewise, gold’s weekly chart depicts the validity of the 2012 analogue. Whether it’s the RSI indicator (as visible on the chart below), the MACD indicator or the overall price action, the readings are profoundly similar, and the bearish implications remain intact.

To explain further, gold’s behavior is mirroring what we witnessed near the end of 2012. For example, following gold’s short-term corrective upswing nearly a decade ago, the yellow metal proceeded to fall off a cliff. And with the shape, the RSI, and the MACD indicators sending the same bearish signals that we witnessed back then (marked with the purple vertical lines and blue ellipses below), if it looks like a duck, swims like a duck and quacks like a duck, then it’s probably a duck.

Furthermore, the recent breakdown also aligns with gold’s self-similar pattern from 2011 to 2013. For example, since we’re right after the point marked with the vertical purple line below, gold should now decline to its previous lows, correct, and then continue its medium-term slide. Likewise, with the duration of the analogue aligning as well, it took 56 weeks for gold to make an initial high and then form a final high from 2011-2013. And since we’re in the midst of a 43-week (76.8% of the 2011-2013 duration) top-to-top pattern, an interim bottom should (assuming that the 76.8% proportion in terms of time remains in place) form in mid-September (which also aligns with gold’s triangle-vertex-based reversal point that was mentioned above) and the final bottom should present itself in mid or late December.

What’s more, gold’s RSI and its MACD indicator are behaving similarly to what they did in early 2013. If you analyze the chart below, you can see that gold’s RSI hovered at 50, while the MACD indicator kept moving lower. Moreover, a similar cocktail is present today. On top of that, the yellow metal is currently sandwiched between its 40-week and 60-week moving averages, and the consolidation in 2013 (prior to the plunge) occurred in between these two key levels. As a result, further weakness likely lies ahead.

To that point, while I’ve been warning for months that the 2013 analog was already upon us, signs of the times are growing stronger by the day.

For context, gold’s weekly RSI is now at ~50 and an initial bottom didn’t materialize in 2013 until the yellow metal’s RSI sank below 30.

I wrote on Oct. 25:

Gold is now at its long-term cyclical turning point. This is very important as when the yellow metal reached this milestone in 2013, the floodgates opened, and a profound drawdown followed. The cyclical turning point at this time would have been bearish on its own, but since it’s also yet another factor pointing to a direct link between the two cases, its exponentially more bearish.

To that point, with gold’s long-term MACD indicator, its two triangle-vertex-based reversal points, and its cyclical turning point (marked with the gray vertical lines below) all signaling the same outcome, it’s no surprise that the yellow metal sold off recently. Moreover, when a similar reversal occurred near gold’s cyclical turning point in 2013, the top was in. As a result, more downside likely lies ahead.

Also, please note that gold’s price action is much broader than in 2013. For example, the recent back-and-forth/horizontal movement contrasts the sharp plunge that occurred back then. However, I don’t expect gold to reach the lows from 2013 (roughly $1,200). In my opinion, $1,400 is more likely this time around. As a result, while gold is stronger now than it was back then, it’s all relative, and the bearish implications still signal lower lows, even if those lows don’t reach the depths of 2013.

Please see below:

If you analyze the long-term chart above, you can see that gold has invalidated the breakout above its 2011 high. More importantly, though, with its rising support line (on the right side of the chart) also coinciding with the 61.8% Fibonacci retracement level and the 2019 and 2020 lows, ~$1,450 to $1,500 is the most prudent medium-term price target.

And like two peas in a pod, the resemblance between 2011-2013 and 2020-2021 remains uncanny.

To explain, back in 2013, gold rallied slightly above its 40-week moving average (blue line in the charts below) before moving lower, and a similar pattern is present right now. And while the current breakout is larger in magnitude, and the yellow metal also broke above its declining resistance line (which didn’t occur in 2013), the recent event-driven rally was likely spurred on by Biden’s infrastructure package (which also didn’t occur in 2013).

Despite that, though, another one of gold’s historical patterns has also converged. For example, in 2013, the yellow metal was stuck in between its late-2011 lows and its early-2012 highs before a sharp drawdown ensued. This time around, gold was stuck in between its late-2020 lows and its early-2021 highs. As a result, the bearish similarities remain intact.

What’s more, the current pattern is likely a delayed version of what we witnessed back then. With back-and-forth movement present in both situations, the sharp drawdown in 2013 occurred a few months after the New Year. However, back then, the back-and-forth movement started a few months earlier. If the consolidation started earlier, it might end earlier too. As such, gold’s pre-slide consolidation could be near its end, and 2022 may end up looking a lot like 2013, with the difference being that we might not need to wait until April for the big declines to take place.

For an in-depth explanation of the self-similarity pattern, I wrote on Sept. 10:

The history repeats itself to a considerable degree, and you will soon see that the fact that gold was unable to hold its breakout above its 2011 highs was not accidental. It’s not a coincidence that gold is now about $300 lower than it was when it reached its August 2020 high, even though the USD Index is trading approximately at the same levels as it was trading in August 2020.

Even without zooming in on the chart above, you can clearly see that both areas marked in yellow are similar (please note that you can click on the chart to enlarge it).

Before discussing gold’s price moves, please note that the positions of the indicators (the RSI in the upper part of the chart, and the MACD in the lower part of the chart) are almost identical now and during the 2012-2013 decline. The areas marked with red and blue correspond to each other.

To make the analogy clearer, I’ll zoom in on them separately, using two charts below.

Both yellow areas start with a small consolidation that takes place after a big rally and right before an even more profound rally, which takes gold to a spike-like high.

Then gold declines. After the first drop and a quick rebound (in both cases), we get the first local top, where gold shows that it’s unable to reach the previous high, let alone break above it. We saw that in November 2011 and in early November 2020.

Then we see another decline in gold’s price. This time, it takes gold below its 40-week moving average (marked with red). Both bottoms form quickly, and the comeback is swift. That happened in December 2011 and in late November 2020.

Then we see another move higher – right to the most recent local high. That happened in February 2012 and in early January 2021.

And then we see another slide lower. In this case, gold bottoms close to the small consolidation that preceded the final (2011, 2020) top. The bottoms were broad and took place between May 2012 and July 2012, as well as between March and April 2021.

Then we get yet another rally that takes gold relatively close to the previous local tops (October 2012 and May 2021). In both cases, the shape of the top is broader than it was in the case of the previous two tops.

After that top, a huge decline in the price of gold begins, but it’s not clear at first, and many people still think it’s just a consolidation that will be followed by more rallies.

During this time (October 2012 – early 2013, and May 2021 – now) gold moves back and forth with lower lows and lower highs. Gold stocks underperform gold in a clear manner in both periods.

So far, the moves have been extremely similar, and if the history simply continues to be similar, we can estimate what’s ahead by extrapolating what we already saw in 2013. Based on this analogy, it seems that we’re about to see one final correction when gold once again moves to its previous (2021) lows, but this correction won’t be significant. It will be the final good-bye to the current trading range before gold truly slides – just as it did between April and June 2013.

Now, this is what the situation looks like right now, and the above outlook is based on much more than just the above (extraordinary, but still) single analogy. The remarkable self-similarity is present also in the HUI Index, and what’s likely to take place in the case of gold’s arch-nemesis – the USD Index – fully corresponds to the above-featured scenario. Silver’s performance confirms it as well. (By the way, have you noticed the fact that even though gold temporarily moved above its 2011 high, neither gold stocks nor silver managed to do the same thing? They were not even close. This should make even the most bullish precious metals investors concerned.)

Also relevant, it’s important to remember that the general stock market’s ability to uplift the PMs is often short lived. For example, the gold/S&P 500 ratio has sunk below its 2018 lows and the breakdown has been more than confirmed (the horizontal black line on the right side of the chart below). As a result, gold should continue to underperform the S&P 500, and if the latter suffers a material correction, the yellow metal will likely decline at a faster pace than the general stock market.

If stocks move higher, though, gold… Could decline anyway as the ratio declines – it’s after a breakdown after all.

However, with the current breakdown ominously similar to 2013, gold has underperformed the S&P 500. And after backtesting the breakdown and failing to invalidate the pattern, the ominous rejection helped verify the bearish signals.

Keep in mind, though: if the general stock market plunges, the ratio may rally if gold’s drawdown is of a lesser magnitude (which is likely given how overvalued the S&P 500 is). Likewise, with another triangle-vertex-based reversal point due in December, a rally would mirror the reversal that we witnessed in 2016 (even though it was in the opposite direction). However, please remember that the GDXJ ETF should suffer a much steeper drop than gold if this scenario unfolds.

Please see below:

Also, if the Covid-19-based price moves repeat themselves, we might indeed see a rally in the ratio. But this would be likely to take place after gold declines significantly, and then it rebounds while stocks continue to move lower. Something like that happened in 2020.

To that point, the ratio is still moving lower. And after falling further below its 2018 lows, the ratio’s downtrend likely has more room to run. As a result, the playbook is as follows: gold should significantly underperform the S&P 500, then record an initial bottom, and then showcase strength relative to the S&P 500.

Gold’s Short-and-Medium-Term Outlook

While gold’s recent rally may seem material, the yellow metal’s strength is much more semblance than substance. For example, gold is relatively underperforming the USD Index, as the dollar basket sunk to new 2022 lows, and gold didn’t recapture its 2022 highs. To explain the significance, I wrote on Jan. 13:

The USD Index declined to fresh 2022 lows – well below the previous January lows, and also below the December and late-November lows. How did gold respond?

Gold rallied – but just by a mere $8.80. While gold got close to its early-January high, it didn’t manage to move above it. 2022 is still a down year for gold. Also, gold is clearly below its November 2021 highs, when it was trading close to $1,900.

Is gold showing strength here?

Absolutely not.

Gold is showing the opposite of strength. It’s weak and unwilling to react to the USD’s weakness. That’s exactly what I want to see as a bearish indication if I plan on entering a short position in the precious metals sector or when I’m timing an exit of a long position, or as a confirmation of a bearish narrative in general.

So, yes, of course I want to say that yesterday’s rally in gold was a bearish development. That’s the case, because gold should have rallied so much more, given what happened in the USD Index. Today’s overnight action makes the bearish case even clearer. The USDX is down a bit, but gold is down too, anyway. It simply doesn’t want to rally. Gold wants to decline instead.

Please see below:

For your reference, a profound triangle-vertex-based reversal point is scheduled to hit in mid-February. While this could signal a local bottom, it’s too early to make that call right now. In any event, if the general stock market declines and shades of 2008 re-emerge, the yellow metal’s fall could be fast and furious.

Also noteworthy, gold’s behavior in 2008 has become even more relevant. Back then, gold rallied hard initially, though the sharp corrective upswing (like the one that we witnessed previously) didn’t prevent the yellow metal from falling off a cliff. As a result, the price action was in line with the countertrend moves that we’ve seen historically.

To that point, while 2013 still provides us with the clearest roadmap of gold’s next move, 2008 shouldn’t be dismissed. And why is that? Well, with a profound drawdown of the S&P 500 present during the latter and not the former, if (once) the general stock market plunges, the pace of gold’s forthcoming decline could be expedited.

Furthermore, with the NASDAQ Composite showcasing material weakness recently, the 2008 analog remains an important piece of the bearish puzzle.

To explain, I wrote previously:

Back in 2008, gold corrected to 61.8% Fibonacci retracement, but it stopped rallying approximately when the USD Index started to rally, and the general stock market accelerated its decline.

Taking into consideration that the general stock market has probably just topped, and the USD Index is about to rally, then gold is likely to slide for the final time in the following weeks/months. Both above-mentioned markets support this bearish scenario and so do the self-similar patterns in terms of gold price itself.

Please also note that if the S&P 500 suffers a profound drawdown – as it did in 2008 and 2020 – gold, silver, and mining stocks will likely partake in the bloodbath. For context, while gold declined sharply in 2008, the HUI Index plunged by more than 50%. As a result, a similar period of underperformance may be on the horizon.

What’s more, there are many other layers to the analogue from 2008 that are extremely important.

Please see below:

Please note (in the lower part of the above chart) that back then, the final huge slide in the mining stocks started when the GDX ETF moved back to its previous highs, while the USD Index moved a bit below its rising support line based on the previous tops. That’s exactly what happened recently as well. The final bottom in the GDX ETF formed about 3 months later at about 1/3 of its starting price.

The recent high was $40.13 and 1/3 thereof would be $13.38. While I don’t want to say that we will definitely see the GDX ETF as low as that, it’s not something that would be out of the ordinary, given the analogy to 2008. Now you see why the large bottoming target on the GDX ETF chart with the lower border in the $15s might actually be conservative… As always, I’ll keep you – my subscribers – updated.

“Ok, but what price level would be likely to trigger a bigger rebound during the next big slide?”

Well, the 76.4% Fibonacci retracement level (it’s visible as the 23.6% Fibonacci retracement level on the above chart as inverting the scale is used as a workaround) also coincides with gold’s April 2020 low. Taken together, an interim bottom could form in the ~$1,575 to $1,600 range.

For context, back in early March, the yellow metal continued to decline after reaching the 61.8% Fibonacci retracement (visible as 38.2% Fibonacci retracement) level, while, in contrast, the miners began to consolidate. Gold finally bottomed slightly below the retracement – at its previous lows. This time around, we might witness a similar event. And while the story plays out, the miners’ relative strength should signal the end of the slide (perhaps with gold close to 1,600), while gold will likely garner support sometime thereafter (at $1,575 – $1,580 or so).

Remember though: this is only an interim target. Over the medium term, the yellow metal will likely form a lasting bottom in the ~$1,350 to $1,500 range.

Finally, adding credibility to the analogy from 2013, long-term interest rates helped push gold off the cliff. And with the U.S. 10-Year Treasury yield bouncing off of its 50-week moving average, a similar development in 2013 (the red shaded area on the right side of the chart below) preceded the most violent part of gold’s medium-term decline. As a result, whether the S&P 500 leads the move lower (like in 2008) or further momentum persists in long-term Treasury yields (like in 2013), gold confronts a challenging environment over the next few months.

The Gold Miners

Suffering from the same affliction as gold, the GDX ETF couldn’t take advantage of the USD Index’s plight. For example, the senior miners ETF didn’t hit a new 2022 high (silver didn’t either), and the greenback’s decline should have resulted in a much stronger rally. Thus, the pattern present in mid-2021 (marked with the green ellipses below) is still in play.

For context, we didn’t have a major decline in the USD Index back then, so it’s no wonder that the current back-and-forth movement during the top is broader. Also, please note that broad tops are not that uncommon in the GDX ETF. That’s how the 2021 top formed.

However, the dollar’s pullback is likely at or near its end, so things are likely to be back to normal soon. And “normal” here means “bearish”. Without the USDX’s massive decline, the GDX ETF likely wouldn’t have rallied at all. As a result, the senior miners’ weakness is visible beneath the surface, and these ominous developments will likely upend the GDX ETF over the medium term.

Please see below:

Also, please remember what I wrote about the impact of tax-loss harvesting:

With the general stock market rallying to start the New Year, losing positions that were sold to offset capital gains near the end of 2021 were likely repurchased on Jan. 3. However, gold, silver, and mining stocks didn’t benefit from the phenomenon. As a result, while the GDX ETF may have outperformed gold, the relative strength was immaterial within the overall picture.

Turning to the HUI Index’s long-term chart, the same bearish signals are present. For example, I marked the specific tops with red and black arrows. In the current situation, we saw yet another small move up, but that’s most likely because the price moves are now less volatile. The areas marked with red ellipses remain similar and show back-and-forth movement before the big decline.

On top of that, while gold approaches its late 2021 highs, the HUI Index is nowhere near the milestone. Gold miners are underperforming gold, and that’s a clear bearish sign. In addition, its stochastic indicator is flashing another sell signal. As such, the HUI Index’s countertrend rally may already be over.

For more context, I wrote previously:

On Nov. 29, I wrote that with mining stocks underperforming gold once again, the HUI Index should showcase more of this pattern over the medium term. For context, 2000 was the only analogy where the HUI Index invalidated the breakdown below its bearish head & shoulders pattern. However, a confluence of indicators signals that the recent invalidation shouldn’t be taken at face value.

And we didn’t have to wait for long for the market to agree with me:

  1. Gold declined by 0.09% three weeks ago, while the HUI Index declined by 3.96%.
  2. The HUI Index invalided the recent breakout (which I had warned would happen) and closed the week below the neckline of its bearish head & shoulders pattern.

To that point, while the HUI Index moved higher this week – after suffering four-straight weeks of weekly declines – the small reversal remains in tune with the price action in 2000. For example, despite the volatile fits and starts, short-term rallies ended with profound drawdowns in 2000 and 2008. As a result, a similar outcome will likely materialize this time around.

Furthermore, the current price action remains akin to the HUI Index’s final comeback rally in 2000 – right before it reversed and suffered a material drawdown – and the sell signal from the stochastic indicator mirrors the ominous warning from 2008. As a result, if the latter’s analogue proves prescient, the HUI Index may fall to or below its 2008 and 2020 lows. Moreover, if the bearish price action really gains steam, a move to - or below - the 2016 lows isn’t out of the question.

Thus, whether it’s 2000, 2008, or 2013, a bearish re-enactment of one of the three will likely unfold over the medium term.

To explain, I wrote previously:

The HUI Index (the flagship proxy for gold stocks) is still trying to decide whether to follow the 2008 or the 2013 analogue. For context, while the initial decline was larger in 2008, the HUI Index’s 2021 corrective upswing is similar to 2008. Conversely, while the HUI Index’s initial decline is similar to 2013, the index’s 2021 corrective upswing is larger than it was in 2013.

However, regardless of how the HUI Index deals with the fork in the road, the important point is that sharp declines followed during both analogies. As a result, the HUI Index should decline to the 100-160 range and the lower-end remains more likely outcome over the medium term.

If the S&P 500 plunges along the way, the more bearish case could materialize (like we witnessed in 2008) and gold stocks at their 2016 lows would not be surprising. However, if the HUI Index declines without any additional help from the general stock market, the 2013 roadmap remains the most likely source of guidance, and in this case, the HUI might decline to “only” 160 or last year’s lows.

Please see below:

Also noteworthy, the S&P 500 has recently had an undue effect on mining stocks. To explain, I wrote previously:

Stock market strength often follows the aphorism that ‘a rising tide lifts all boats.’

And while gold mining stocks rode the bullish wave, the sentiment high will likely reverse over the medium term.

To explain, silver and mining stocks are some of the worst performers when volatility strikes the general stock market. And with mining stocks’ recent bout of optimism underwritten by the S&P 500’s recent rally, when market participants ‘panic buy’ everything in sight, they often gobble up the major laggards (with the goal of capitalizing on potential mean reversion). Moreover, with silver and mining stocks some of the worst-performing assets YTD, the optimism helped uplift these laggards.

However, with the upswings largely driven by sentiment and not fundamental (in the short / medium term) or technical realities, silver and mining stocks’ rallies are unlikely to hold over the medium term. Furthermore, it’s important to remember that cheap assets are often cheap for a reason. And with the marginal buyers of silver and mining stocks buying momentum and not medium-term technicals or fundamentals, they’ll likely end up holding the bag when sentiment reverses once again.

In other words, it was probably buying from the general public that helped to lift gold stocks higher – the kind of investors that enter the market at the end of the upswing, buying what’s cheap regardless of the outlook. And that’s also the kind of investors that tends to lose money.

If you really think that gold stocks were strong two weeks ago, please compare their performance to the one of copper, for example. The latter moved sharply higher, while miners simply corrected from their yearly lows.

In addition, while I’ve also been warning about the ominous similarity to 2012-2013, the HUI Index continues to hop into the time machine. To explain, the vertical, dashed lines above demonstrate how the HUI Index is following its 2012-2013 playbook. For example, after a slight buy signal from the stochastic indicator in 2012, the short-term pause was followed by another sharp drawdown. For context, after the HUI Index recorded a short-term buy signal in late 2012 – when the index’s stochastic indicator was already below the 20 level (around 10) and the index was in the process of forming the right shoulder of a huge, medium-term head-and-shoulders pattern – the index moved slightly higher, consolidated, and then fell off a cliff. Thus, the HUI Index is quite likely to decline to its 200-week moving average (or so) before pausing and recording a corrective upswing. That’s close to the 220 level. Thereafter, the index will likely continue its bearish journey and record a final medium-term low some time in December.

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

Yes, the HUI Index moved back above the previous lows and the neck level of the formation, which – at face value – means that the formation was invalidated, but we saw a similar “invalidation” in 2000 and in 2013. Afterwards, the decline followed anyway. Consequently, I don’t think that taking the recent move higher at its face value is appropriate. It seems to me that the analogies to the very similar situation from the past are more important.

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

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

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

Like its precious metals peers, the GDXJ ETF’s behavior should be analyzed within the context of the USD Index’s performance. For example, while the junior miners have rallied recently, the price action mirrors the broad topping pattern from May and early-June 2021.

Likewise, the double top in the GDXJ ETF’s RSI is similar to the profound plunge that unfolded in late 2021. While the junior miners ETF made a new high back then and hasn’t achieved the milestone this time around, the GDXJ ETF is much weaker now. Thus, the similarity is still present and the potential for a sharp decline remains.

All in all, fits and starts were part of the GDXJ ETF’s downtrend in 2021, and 2022 should produce more of the same.

Please see below:

Finally, while I’ve been warning for months that the GDXJ/GDX ratio was destined for devaluation, the ratio has fallen precipitously in 2021. Interestingly, the RSI was previously overbought, and similar periods of excessive optimism have preceded major drawdowns (marked with the black vertical dashed lines below).

To that point, the ratio showcased a similar overbought reading in early 2020 – right before the S&P 500 plunged. On top of that, the ratio is still near its mid-to-late 2020 lows and its mid-2021 lows. As a result, the GDXJ ETF will likely underperform the GDX ETF over the next few months. It’s likely to underperform silver in the near term as well.

Furthermore, a drop below 1 in the ratio isn’t beyond the realms of possibility. In fact, it’s actually quite likely – that’s what happened in 2020 as well, and that’s why I’m shorting the GDXJ ETF.

For context, I believe that gold, silver, and the GDX ETF are all ripe for sharp re-ratings over the medium term. However, it’s my belief that the GDXJ ETF offers the best risk-reward ratio due to its propensity to materially underperform during bear markets. As a result, shorting junior miners remains the most prudent strategy, in my opinion.

The bottom line?

If the ratio is likely to continue its decline, then on a short-term basis we can expect it to trade at 1.27 or so. If the general stock market plunges, the ratio could move much lower, but let’s assume that stocks decline moderately or that they do nothing or rally slightly. They’ve done all the above recently, so it’s natural to expect that this will be the case. Consequently, the trend in the GDXJ to GDX ratio would also be likely to continue, and thus expecting a move to about 1.26 - 1.27 seems rational.

If the GDX is about to decline to approximately $28 before correcting, then we might expect the GDXJ to decline to about $28 x 1.27 = $35.56 or $28 x 1.26 = $35.28. In other words, ~$28 in the GDX is likely to correspond to about $35 in the GDXJ.

Is there any technical support around $35 that would be likely to stop the decline? Yes. It’s provided by the late-Feb. 2020 low ($34.70) and the late-March high ($34.84). There’s also the late-April low at $35.63.

Consequently, it seems that expecting the GDXJ to decline to about $35 is justified from the technical point of view as well.

For more context on the GDXJ/GDX ratio, I wrote previously:

The GDXJ ETF remains a significant underperformer of the GDX ETF. Despite sanguine sentiment and a strong stock market creating the perfect backdrop for the junior miners, the GDXJ ETF hasn’t lived up to the hype. To that point, it’s important to remember that small fakeouts in the juniors to seniors ratio often occur right before medium-term tops. Why? Because juniors tend to catch up with seniors, somewhat similarly to silver.

In addition, once one realizes that GDXJ is more correlated with the general stock market than GDX is, GDXJ should be showing strength here, and it isn’t. If stocks don’t decline, GDXJ is likely to underperform by just a bit, but when (not if) stocks slide, GDXJ is likely to plunge visibly more than GDX.

Expanding on that point, the GDXJ/GDX ratio has been declining since the beginning of the year, which is remarkable because the general stock market hasn’t plunged yet. However, if the S&P 500 proceeds to decline, the junior miners will likely underperform the senior miners. As a result, the GDXJ ETF has a lot more room to fall than the GDX ETF.

Why haven’t the juniors been soaring relative to senior mining stocks? What makes them so special (and weak) right now? In my opinion, it’s the fact that we now – unlike at any other time in the past – have an asset class that seems similarly appealing to the investment public. Not to everyone, but to some. And this “some” is enough for juniors to underperform.

Instead of speculating on an individual junior miner making a killing after striking gold or silver in some extremely rich deposit, it’s now easier than ever to get the same kind of thrill by buying… an altcoin (like Dogecoin or something else). In fact, people themselves can engage in “mining” these coins. And just like bitcoin seems similar to gold to many (especially the younger generation) investors, altcoins might serve as the “junior mining stocks” of the electronic future. At least they might be perceived as such by some.

Consequently, a part of the demand for juniors was not based on the “sympathy” toward the precious metals market, but rather on the emotional thrill (striking gold) combined with the anti-establishment tendencies (gold and silver are the anti- metals, but cryptocurrencies are anti-establishment in their own way). And since everyone and their brother seem to be talking about how much this or that altcoin has gained recently, it’s easy to see why some people jumped on that bandwagon instead of investing in junior miners.

This tendency is not likely to go away in the near term, so it seems that we have yet another reason to think that the GDXJ ETF is going to move much lower in the following months – declining more than the GDX ETF. The above + gold’s decline + stocks’ decline is truly an extremely bearish combination, in my view.

In addition, I warned on Jun. 1 that the HUI Index/S&P 500 ratio invalidation of the breakdown below its rising support line (which became resistance) would be short-lived.

I wrote:

[The invalidation] doesn’t outweigh the myriad of other indicators – both technical and fundamental – that signal further weakness. In other words, the ratio should move back below its rising support/resistance line shortly.

And going from “maybe” to “likely” to “happened” once again, the HUI Index/S&P 500 ratio is now back in the bearish zone.

Moreover, new lows should materialize over the medium term.

Please see below:

On top of that, the countertrend upswing actually mirrored the behavior that we witnessed in 2018. If you analyze the left side of the chart, you can see that the ratio flirted with its rising support line before eventually rolling over. And with the current price action looking eerily similar, the ratio’s final act could be just as painful.

For more context:

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.

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.

Moreover, while the HUI Index/gold ratio invalidated the breakdown below its rising support line, a similar development occurred in 2013 and the downtrend still resumed. As a result, the recent bounce is nothing to write home about and another breakdown should occur sooner rather than later.

On top of that, I marked (with the shaded red boxes below) just how similar the current price action is to 2013. And back then, after a sharp decline was followed by a small corrective upswing before the plunge, the ratio’s current behavior mirrors its historical counterpart. What’s more, the end of the corrective upswing in 2013 occurred right before gold sunk to its previous lows (marked with red vertical dashed lines in the middle of the chart below). Thus, the ratio is already sending ominous warnings about the PMs’ future path.

And to provide another update, the ratio is dangerously close to its 200-day moving average. Moreover, when a similar development occurred in 2013 – with the ratio rising slightly above its 200-day moving average (marked with the red vertical dashed line below) – a sharp reversal occurred, mining stocks materially underperformed, and the ratio plunged.

Moreover, the forecast continues to unfold as expected. In addition, with the S&P 500 acting as the bearish canary in the coal mine, the ratio plunged in 2008 and 2020 when the general stock market tanked. Thus, if a similar event unfolds this time around, the gold miners’ sell-off could occur at a rapid pace.

Please see below:

For more context, I wrote previously:

A major breakdown occurred last week after the HUI Index/gold ratio sunk below its rising support line (the upward sloping black line on the right side of the chart above). Moreover, with the bearish milestone only achieved prior to gold’s crash in 2012-2013, the ratio’s breakdown in 2013 was the last chance to short the yellow metal at favorable prices. And while I’ve been warning about the ratio’s potential breakdown for weeks, the majority of precious metals investors are unaware of the metric and its implications. As a result, investors’ propensity to ‘buy the dip’ in gold will likely backfire over the medium term.

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 trigger a major reversal. The Index is now at 30. However, far from a medium-term bottom, the latest reading is still more than 20 points above the 2016 and 2020 lows.

Also noteworthy, if you analyze the left side of the chart below (2012-2013), you can see that when the BPGDM declined to zero (it can’t go below), it actually marked the beginning of gold stocks’ bottoming process (meaning that gold miners still moved much lower). As a result, even if the BPGDM declines further, it may only signal a short-term bottom and not the true medium-term bottom. Due to that, other indicators should take precedence over the BPGDM (at least in the short term).

Likewise, when the BPGDM hit 30 in 2013, the HUI Index was already in the midst of its medium-term downtrend (similar to what we’ve witnessed so far in 2021). However, the milestone was far from the final low. With the material weakness persisting and a lasting bottom not forming until the end of 2015/early 2016, further downside likely lies ahead.

For context, it’s my belief that PMs will bottom when the BPGDM hits zero – and perhaps when it remains there for some time.

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.

With all of that said: how will we know when a medium-term buying opportunity presents itself?

I view price target levels as guidelines and the same goes for the Gold Miners Bullish Percent Index (below 10), but the final confirmation will likely be gold’s strength against the ongoing USDX rally. At many vital bottoms in gold, that’s exactly what happened, including the March bottom.


With silver’s long-term cycle implying a surge above $75 (and even $100) over the next several years, the white metal’s secular uptrend remains intact. However, with an epic collapse likely to precede the forthcoming Renaissance, volatility presents us with ample opportunities.

Case in point: silver cycles last roughly two years and the turning points culminate with extreme volatility in both directions. Sometimes ferocious rallies follow, and other times the white metal falls off a cliff. In the here and now, with silver approaching the end of its current cycle, a supreme climax could be around the corner. Moreover, when we combine the myriad of technical and fundamental indicators signaling the same outcome, the white metal could get cut in half over the next few months.

Furthermore, with the white metal declining sharply after reaching its long-term turning point, silver is mirroring its behavior from past cycles. And with the historical shifts ending with profound drawdowns, another major decline should commence in the coming months.

Please see below:

As for the short term, please note that the current back-and-forth movement that started in August 2020, follows the path established in 2019/2020. What we see right now is actually a similar rally to what occurred in late February/early March (right before silver suffered a sharp decline). Moreover, while the current move has been broader and has played out over a longer timeframe, history often rhymes.

Moving to the very recent events, while silver has rallied in recent days, the white metal has underperformed the USD Index and it hasn’t recaptured its 2022 highs. Also noteworthy, silver outperformed gold and mining stocks on Jan. 13, and daily optimism (on a relative basis) often precedes bearish events.

In addition, silver is near its 50-day moving average (which is now resistance). After it rallied above the key level intraday on Jan. 13, sellers emerged, and the white metal couldn’t maintain momentum. As a result, silver ended the Jan. 13 session six cents below its 50-day MA, and the bearish rejection is likely a sign of things to come.

Finally, the current price action continues to mirror that of March 2020 – where silver corrected half of its prior decline and then topped close to its 50-day moving average. Keep in mind, though: the forthcoming decline will likely be more orderly than in March 2020. However, the drawdown should be quite significant nonetheless.

For more context, I wrote on Jan. 3:

After the late-Feb. and early-Mar. 2020 slide (that took silver to its previous lows), silver corrected about half of its previous decline. The same thing happened recently.

Back then, silver topped close to its 50-day moving average, and that’s where the white metal moved recently as well.

Just because this pattern is similar price-wise, it doesn’t mean that it’s identical time-wise, and thus that silver is likely to drop as quickly as it did in 2020. Right now, the price moves are not as volatile, and the declines are unlikely to be AS volatile as they were in 2020 – at least not before the final part of the decline.

It seems that what took days in 2020, now takes weeks. This means that we might see a decline that’s so huge that it takes weeks or even months to complete, not just several days.

Please see below:

To explain, multiple bearish factors signal that silver is likely to challenge the ~$19 level in the coming weeks before a corrective upswing ensues. For context, the range coincides with the 61.8% Fibonacci retracement level and the September 2019 highs. To clarify: in my view, silver is very likely to soar in the following years, but timing matters, and ignoring cycles, trends, and technical patterns is what could make people lose a lot of capital.

Likewise, with silver’s 2008 analog signaling more trouble ahead, the dam should break sooner rather than later. Also, please note that gold is the canary in the coal mine, and the yellow metal’s behavior will likely signal the shift in silver’s sentiment.

For more context on silver’s self-similarity patterns, I wrote previously:

If you analyze the left side of the chart above, you can see that silver moved back and forth before breaking toward its September highs. However, after failing to complete the milestone, the white metal eventually collapsed. As a result, with the pattern on the right side of the chart eerily similar, investors’ optimism has occurred at what’s likely the worst possible time.

To that point, with its current behavior also mirroring 2008 – where silver fell below and then rallied back above its 50-day MA before plunging – the white metal remains on a journey of self-destruction.

If we zoom in on the white metal’s price action in 2008, you can see that an immaterial bounce also occurred right before silver fell off a cliff.

The final corrective upswing of early 2020 took place in very late February and early March, while the two – normal – tops that created the red-line rectangle formed more or less at the turn of the year and in late February. This year, it’s all taking place at almost exactly the same time of the year.

Let’s be realistic - so far, the analogy (to what happened in 2019 and 2020) might seem too unclear to be viewed as a reliable base for making a silver forecast.

But what if… What if there was a very similar pattern in the past that also preceded a massive decline? This would greatly increase the reliability of the above self-similarity.

There was indeed such a pattern!

That’s what silver did in 2008 before it declined.

For context, the economic developments unfolding now differ from those of 2008. However, if the general stock market plunges, the fear that grips investors during crises remains the common denominator. What’s more, with silver, an industrial metal that benefits from economic strength, a profound drawdown will likely ensue if all of that optimism goes out the window (like in 2008).

The August 2007 – March 2008 rally (please note the interim top in November 2007 that was followed by a zigzag decline, more or less in the middle of the rally) is similar to the March 2020 – August 2021 rally (please note the interim top in June 2020 that was followed by a zigzag pattern, more or less in the middle of the rally).

Afterwards, we saw a double top in both cases that was followed by a sizable slide. Then silver formed a specific U-shaped broad top, where the final top was below the initial one (exception: in this case the forum-based rally took silver slightly above the previous high, but due to the specific / random nature of the move, it “doesn’t count” as something that invalidates the analogy).

After the top, silver declined, and the final corrective upswing took place approximately between the 50- and 200-day moving averages.

Please note that in both previous (2008 and 2020) cases silver then truly plunged, and it kept on declining until it moved below the 2.618 Fibonacci extension based on the initial downswing. The above charts illustrate that by showing the first decline at the 38.2% retracement (1 / 0.382 = approximately 2.618). Applying the same to the current situation (the initial decline took silver from below $30 to below $24) provides us with the minimum decline target at about $13.50. Will silver really decline as low? In my view, it’s imperative to watch other markets for indications as they might have more reliable targets (for instance gold), but I wouldn’t say that this target (or lower price levels) is out of the question. Of course, that’s just on a temporary basis – silver will likely soar in the following months and years (after this decline).

Highlighting the effect of WallStreetBets’ #SilverSqueeze, the SLV ETF’s volume spikes in 2020/2021 were nearly identical to the surges that we witnessed ~10 years ago. If you analyze the chart below, you can see that the massive inflows at the end of 2012 were not the beginning of a medium-term upswing. In fact, they coincided with silver’s final bounce before the white metal suffered a major decline.

Please see below:

If you analyze the volume spikes at the bottom of the chart, 2021 and 2011 are a splitting image. To explain, in 2011, an initial abnormal spike in volume was followed by a second parabolic surge. However, not long after, silver’s bear market began.

SLV-volume-wise, there's only one similar situation from the past - the 2011 top. This is a very bearish analogy as higher prices of the white metal were not seen since that time, but the analogy gets even more bearish. The reason is the "initial warning" volume spike in this ETF. It took place a few months before SLV formed its final top, and we saw the same thing also a few months ago, when silver formed its initial 2020 top.

In addition, the SLV ETF is also following the 2011 playbook. Back then, the SLV ETF recorded an initial spike in price and volume and followed that up with a parabolic spike in both that marked THE top. This was then followed by one last spike in price on relatively average volume. To that point, if you focus your attention on the right side of the chart above, you can see that an identical formation is present. After an initial spike in price and volume, the big one occurred in early 2021. And with silver’s latest rally occurring on relatively average volume, the price action looks a lot like the calm before the 2011 storm.

That third average-volume top in 2011 was the final chance to sell silver above $40 and perhaps to short it. It could be the same right now, but with regard to the $25 price level. Of course, silver is likely to soar well above $50 and $100 in the following years, but currently, the analogy points to lower prices in the medium term.

The history may not repeat itself to the letter, but it tends to be quite similar. And the more two situations are alike, the more likely it is for the follow-up action to be similar as well. And in this case, the implications for the silver price forecast are clearly bearish.

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.

Similarly, silver’s inverse price action also has bearish implications. Nearly identical to the inverted formation that emerged from 2006 to 2009, today’s chart looks eerily similar to its predecessor.

While it’s more of a wild card, the above pattern shows that silver’s 2020 top plots are nearly identical to the inverse of the 2006-2009 performance. I copied the 2006 – 2009 performance right below the regular price movement and inverted it. I also copied this inverted pattern to the last few years.

The similarity is quite significant. And whenever a given pattern has been repeated, the odds are that it could also repeat in the not-too-distant future. Of course, there is no guarantee for that, but once the same market has reacted in a certain way to a specific greed/fear combination, it can just as well do it again. And these similarity-based techniques work quite often. So, while it’s not strong enough to be viewed as a price-path-discovery technique on its own, it should make one consider some scenarios more closely. In particular, this means that the declines in the prices of silver, gold, and mining stocks could be bigger and take longer than it seems based on other charts and techniques.

The above is also in tune with the implications of the sell signal from the MACD indicator on the monthly gold chart.

The only thing that comes to my mind which could – realistically – trigger such a prolonged decline would be a major drop in the general stock market. Given what I wrote above, the latter is quite possible, so I’ll be on the lookout for confirmations and invalidations of this scenario.

If history rhymes, silver could be in for a profound decline over the next few months (beyond my initial target). Moreover, the development would increase the duration of the precious metals’ bear market (also beyond my initial forecast).

After all, gold did invalidate its long-term breakout above the 2011 highs, and the way gold reacted to a small upswing in the USD Index was truly profound…

Turning to cross-asset correlations, gold, silver, and the HUI Index’s 10-day correlations have largely stabilized. And we expect the PMs’ strong negative relationships with the U.S. dollar to remain over the medium term (in tune with the long-term correlations). Moreover, with the U.S. dollar in season once again, an uprising should send the PMs running in the opposite direction.

For context, due to the current COVID-19 situation, scrambled correlations may remain for some time. However, the 2020 analogy is more important right now, and the correlations will likely find their footing over the medium term.

For more context, I wrote previously:

Since gold, silver, and mining stocks have been strongly negatively correlated with the USD Index in the medium term, it seems likely that they will be negatively affected by the upcoming sizable USDX upswing.

Until we see the day where gold reverses or soars despite the U.S. currency’s rally.

If that happens with gold at about $1,350 - $1,500, we’ll have a very good chance that this was the final bottom. If it doesn’t happen at that time, or gold continues to slide despite USD’s pause or decline, we’ll know that gold has further to fall.

Naturally, we’ll keep you – our subscribers – informed.

Overview of the Upcoming Part of the Decline

  1. It seems to me that the corrective upswing is over, and that gold, silver, and mining stocks are now likely to continue their medium-term decline.
  2. It seems that the first (bigger) stop for gold will be close to its previous 2021 lows, slightly below $1,700. Then it will likely correct a bit, but it’s unclear if I want to exit or reverse the current short position based on that – it depends on the number and the nature of the bullish indications that we get at that time.
  3. After the above-mentioned correction, we’re likely to see a powerful slide, perhaps close to the 2020 low ($1,450 - $1,500).
  4. If we see a situation where miners slide in a meaningful and volatile way while silver doesn’t (it just declines moderately), I plan to – once again – switch from short positions in miners to short positions in silver. At this time, it’s too early to say at what price levels this could take place, and if we get this kind of opportunity at all – perhaps with gold close to $1,600.
  5. I plan to exit all remaining short positions once gold shows substantial strength relative to the USD Index while the latter is still rallying. This may be the case with gold close to $1,350 - $1,400. I expect silver to fall the hardest in the final part of the move. This moment (when gold performs very strongly against the rallying USD and miners are strong relative to gold after its substantial decline) is likely to be the best entry point for long-term investments, in my view. This can also happen with gold close to $1,375, but at the moment it’s too early to say with certainty.
  6. As a confirmation for the above, I will use the (upcoming or perhaps we have already seen it?) top in the general stock market as the starting point for the three-month countdown. 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 is likely to bottom about three months after the general stock market tops.
  7. The above is based on the information available today, and it might change in the following days/weeks.

You will find my general overview of the outlook for gold on the chart below:

Please note that the above timing details are relatively broad and “for general overview only” – so that you know more or less what I think and how volatile I think the moves are likely to be – on an approximate basis. These time targets are not binding or clear enough for me to think that they should be used for purchasing options, warrants or similar instruments.

Letters to the Editor

Q: Please comment on this commentary in Bloomberg.

[In short, the first paragraph from this article summarizes what it’s about: Sell the dollar and put money into assets such as emerging-market stocks and gold as the world’s economic recovery gathers steam, money managers say.]

A: I respectfully disagree.

I’ve been writing a lot about the positive fundamentals for the USD in the previous days and weeks, and I don’t want to repeat that here, but here’s some extra information:

One could say that the dollar was overvalued, and that was visible through the RSI on the weekly USD Index chart that hit 70 recently. That’s when I wrote that a correction was possible, and that it wouldn’t change the bigger uptrend. That’s what’s been happening so far.

After a decline, there’s usually more bearish than before, as investors (professionals too) tend to view declines as bearish and rallies as bullish – it’s very easy to extrapolate the very recent past into the future. This was the way of thinking at the beginning of 2021 as well. Everyone and their brother were expecting the USD Index to continue to decline, as that was what preceded the start of the previous year. I wrote that it was likely to rally. Indeed, it rallied.

The dollar is likely to keep weakening as the hypothesis of a wider U.S. deficit and a broader global recovery favoring assets outside America is now starting to play out, investors say.

The deficits have been widening for many years, and the USD Index has both: rallied and declined during those times – that’s not a valid argument.

What about the broader global recovery? That’s what just happened. That’s unlikely to be upheld given that the interest rates are about to go up. If they go up in the U.S. only, the U.S. dollar will become much more attractive (higher interest) compared to other major currencies, where increasing rates is rather unlikely (and even if so, then not to the degree that the rates are likely to be increased in the U.S.) – I mean the euro and the yen. Consequently, the USD would be likely to appreciate against those currencies, and these are the two biggest components of the USD Index (the EUR/USD and JPY/USD pairs).

If the interest go up everywhere, then one can say good-bye to the scenario in which there’s a “global recovery”.

“Global stagflation” seems much more likely to me, but the rates in the U.S. are likely to be increased more aggressively than in other major economies, as the U.S. can handle those increases better. You can see it even through something as simple as the main stock indices. U.S. stocks are one of the strongest. The S&P 500 is up about 120% from its 2020 bottom. The German DAX is not even up by 100%.
The UK’s FTSE250 index recovered even less. The French CAC40 is up by about 100% from its 2020 low – but it’s still less than the S&P 500.

What about the world’s stocks in general? They just failed to rally above their highs from over 20 years ago (the MSCI World Index excluding the USA – I already discussed this chart earlier today); and they gained less than 80% from their 2020 low.

Also, please remember what happened in 2008. The S&P 500 fell by about 58% between its 2007 high and the final 2009 low. The MSCI World Index excl. USA fell by about 62%. World stocks still fell more, even though it was the U.S. subprime crisis that started it all.

The dollar’s slide represents a natural part of the global recovery as markets look through the current risks from Omicron to a pandemic that is much more manageable this year (…).

The pandemic is not better, but worse, and it doesn’t look that manageable when looking at the chart below (new cases worldwide), does it?

The cases are going through the roof, and when they increased only somewhat in 2020, then stock markets fell, and the USD Index gained. Then the USD Index fell, as the rates were slashed and QE started, but… This time, monetary policy is going the other way around – focused on fighting inflation.

Yes, the fear factor is now much smaller, but saying that “pandemic is much more manageable this year” is something that I don’t agree with.

Summing up, I see very little chance of emerging markets outperforming the U.S. dollar this year.


Summing up, it seems to me that the corrective upswing is over, and that gold, silver, and mining stocks are now likely to continue their medium-term decline. I continue to think that junior mining stocks are currently likely to decline the most out of all parts of the precious metals sector.

From the medium-term point of view, the key two long-term factors remain the analogy to 2013 in gold and the broad head and shoulders pattern in the HUI Index. They both suggest much lower prices ahead.

It seems that our profits from the short positions are going to become truly epic in the following months.

After the sell-off (that takes gold to about $1,350 - $1,500), I expect the precious metals to rally significantly. The final part of the decline might take as little as 1-5 weeks, so it's important to stay alert to any changes.

Most importantly, please stay healthy and safe. We made a lot of money last March and this March, and it seems that we’re about to make much more on the upcoming decline, but you have to be healthy to enjoy the results.

As always, we'll keep you - our subscribers - informed.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full speculative short positions (300% of the full position) in junior mining stocks are justified from the risk to reward point of view with the following binding exit profit-take price levels:

Mining stocks (price levels for the GDXJ ETF): binding profit-take exit price: $35.73; stop-loss: none (the volatility is too big to justify a stop-loss order in case of this particular trade)

Alternatively, if one seeks leverage, we’re providing the binding profit-take levels for the JDST (2x leveraged) and GDXD (3x leveraged – which is not suggested for most traders/investors due to the significant leverage). The binding profit-take level for the JDST: $16.18; stop-loss for the JDST: none (the volatility is too big to justify a SL order in case of this particular trade); binding profit-take level for the GDXD: $32.08; stop-loss for the GDXD: none (the volatility is too big to justify a SL order in case of this particular trade).

For-your-information targets (our opinion; we continue to think that mining stocks are the preferred way of taking advantage of the upcoming price move, but if for whatever reason one wants / has to use silver or gold for this trade, we are providing the details anyway.):

Silver futures downside profit-take exit price: $19.12

SLV profit-take exit price: $17.72

ZSL profit-take exit price: $41.38

Gold futures downside profit-take exit price: $1,683

HGD.TO – alternative (Canadian) inverse 2x leveraged gold stocks ETF – the upside profit-take exit price: $12.48

HZD.TO – alternative (Canadian) inverse 2x leveraged silver ETF – the upside profit-take exit price: $30.48

Long-term capital (core part of the portfolio; our opinion): No positions (in other words: cash

Insurance capital (core part of the portfolio; our opinion): Full position

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.

Please note that we describe the situation for the day that the alert is posted in the trading section. In other words, if we are writing about a speculative position, it means that it is up-to-date on the day it was posted. We are also featuring the initial target prices to decide whether keeping a position on a given day is in tune with your approach (some moves are too small for medium-term traders, and some might appear too big for day-traders).

Additionally, you might want to read why our stop-loss orders are usually relatively far from the current price.

Please note that a full position doesn't mean using all of the capital for a given trade. You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.

As a reminder - "initial target price" means exactly that - an "initial" one. It's not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade), we will refer to these levels as levels of exit orders (exactly as we've done previously). Stop-loss levels, however, are naturally not "initial", but something that, in our opinion, might be entered as an order.

Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main markets that we provide these levels for (gold, silver and mining stocks - the GDX ETF), the stop-loss levels and target prices for other ETNs and ETF (among other: UGL, GLL, AGQ, ZSL, NUGT, DUST, JNUG, JDST) are provided as supplementary, and not as "final". This means that if a stop-loss or a target level is reached for any of the "additional instruments" (GLL for instance), but not for the "main instrument" (gold in this case), we will view positions in both gold and GLL as still open and the stop-loss for GLL would have to be moved lower. On the other hand, if gold moves to a stop-loss level but GLL doesn't, then we will view both positions (in gold and GLL) as closed. In other words, since it's not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can't provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the signs pointing to closing a given position or keeping it open. We might adjust the levels in the "additional instruments" without adjusting the levels in the "main instruments", which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets. We are already working on a tool that would update these levels daily for the most popular ETFs, ETNs and individual mining stocks.

Our preferred ways to invest in and to trade gold along with the reasoning can be found in the how to buy gold section. Furthermore, our preferred ETFs and ETNs can be found in our Gold & Silver ETF Ranking.

As a reminder, Gold & Silver Trading Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent, we will send you an additional small alert before posting the main one.

Thank you.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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