The markets are closed in the U.S. today due to the Memorial Day, so we’re not posting the usual Alerts, but I thought that I’d send you a quick note about the most important development that happened last week.
That development is what happened in gold and how the flagship proxy for gold stocks – the HUI Index – reacted to this change.
The thing is that gold rallied by almost $30 last week ($28.60) and at the same time, the HUI Index… Declined by 1.37. In other words, gold stocks completely ignored gold’s gains. If it was the case that the general stock market was particularly weak last week, then this kind of performance would still be relatively normal, not necessarily bearish. However, that’s not what happened in stocks. What happened was that the S&P 500 Index ended the week 48.25 (1.16%) higher. Given this, and gold’s rally, gold stocks definitely “should” be rallying. And they didn’t. That shows exceptional weakness on the weekly basis and is a very bearish sign for the following weeks.
Back in 2008, in late September and early October gold was still moving to new intraday highs, but the HUI Index was first ignoring that and then it declined despite that, but it was also the case that the general stock market declined then. If stocks hadn’t declined back then so profoundly, gold stocks’ underperformance of gold would likely be present, but more moderate. In fact, that’s exactly what happened in 2012.
The HUI Index topped on September 21, 2012 and that was just the initial high in gold. At that time the S&P 500 was moving back and forth with lower highs – so a bit more bearish than the current back and forth movement in this stock index. What happened in the end? Gold moved to new highs and formed the final top at that time (October 5, 2012). It was when the S&P 500 almost (!) moved to new highs, and despite both, the HUI Index didn’t move to new highs at that time.
The similarity to how the final counter-trend rally ended in 2012 (and to smaller extent in 2008) ended is uncanny. The implications are very bearish for the following weeks.
As always, we’ll keep you - our subscribers - informed. The full, this week’s flagship Gold & Silver Trading Alert will be posted tomorrow.
Przemyslaw Radomski, CFA