Briefly: in our opinion, full (300% of the regular position size) speculative short positions in 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’ve promised you previously, in our flagship Alerts, we will be providing you with much more comprehensive and complex analyses (approximately once per week), which will usually take place on Monday.

Predicated on last 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 discussion of the fundamental drivers that could affect the precious metals in the coming weeks.

With inflationary pressures bubbling beneath the surface, the U.S. 10-Year breakeven inflation rate has been on fire since the New Year.

Please see below:

Moreover, while the U.S. 10-Year Treasury yield was originally outpacing the U.S. 10-Year breakeven inflation rate – resulting in a rising real yield – the former’s recent consolidation resulted in a reversal of fortunes. More importantly, though, like a dog wagging his tail, gold loved every minute of it.

Furthermore, while April’s nonfarm payrolls report was a major disappointment, the yellow metal didn’t seem to mind. Case in point: with the U.S. economy adding 266,000 jobs vs. 1 million expected, the official unemployment rate actually rose from 6.0% to 6.1%.

Please see below:

However, with the bond market’s initial response to bid up U.S. Treasuries on May 7, the volatility helped support the yellow metal, as it didn’t take long for gold to capitalize on the U.S. 10-Year Treasury yield’s moment of weakness.

Conversely, it’s important to remember that the U.S. 10-Year Treasury yield recovered all of its intraday losses and actually ended the day in positive territory. On top of that, with the Treasury benchmark demonstrating its largest-ever divergence from the U.S. 10-Year breakeven inflation rate, a spike in the opposite direction could eventually swing the wrecking ball.

To explain, I wrote on May 7:

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

Please see below:

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

In addition, over the medium-to-long-term, the copper/U.S. 10-Year Treasury yield ratio is a 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:

More importantly, though, with copper surging in recent weeks and the U.S. 10-Year Treasury yield stuck in consolidation mode, gold has enjoyed the period of tranquility.

Please see below:

However, with China’s manufacturing PMI (new orders) beginning to roll over, copper’s recent momentum could be ripe for a reversal.

To explain, the blue line above tracks the year-over-year (YoY) percentage change in copper, while the gray line above tracks China’s manufacturing PMI (new orders). If you analyze the right side of the chart, you can see that investors have priced in the highest Chinese demand in more than 10 years. Conversely, with the gray line signaling extreme overconfidence, a reconnect could weigh heavily on gold in the coming weeks.

The bottom line?

With the copper/U.S. 10-Year Treasury yield ratio highly correlated with the yellow metal, copper’s rocket ship has helped propel gold back above $1,800. However, if momentum sputters and the enterprise comes back down to earth, gold will likely suffer a hard landing.

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:

S&P 500 (SPX) Signals

With the NASDAQ Composite becoming an equities’ canary in a coal mine, not only did the tech-heavy index suffer another weekly decline, but the implications of its failed attempt at new highs and the prior week’s shooting star remain intact. For context, a shooting star candle signals a bearish reversal when formed during an uptrend.

Please see below:

As for the S&P 500, the U.S. equity benchmark has ridden the reflation train to new highs. However, with the NASDAQ Composite demonstrating significant underperformance and several speculative IPOs and SPACs already being sent to slaughter, the medium-term outlook for the S&P 500 remains profoundly bearish. For one, the six largest companies in the NASDAQ Composite (Apple, Microsoft, Amazon, Tesla, Facebook and Alphabet) are also the six largest companies in the S&P 500. Thus, the latter is unlikely to escape a technology tirade. Second, and even more important, the S&P 500 remains fully entrenched in its 2018-2019 analogue:

To explain, I wrote previously:

Despite the S&P 500 moving above 4,000, the U.S. equity benchmark is still following its 2018-2019 script. Back then, the S&P 500 recorded a sharp move higher, consolidated (with heightened volatility, which I marked with a green box below), continued its uptrend, then suffered a material drawdown. And over the last 12 months, the S&P 500 has already completed the first three steps.

But how did it unfold?

Well, if you analyze the green-shaded area on the left side of the chart, you can see that the S&P 500’s breakdown below the black and red lines (that are based on the previous bottoms) was accompanied by increased volatility. From there, the rally continued before the stock market eventually collapsed.

Analogous to today’s price action, we’ve already witnessed the first three scenes from the theatrical performance. Only this time, the S&P 500 hasn’t plunged… Yet.

However, because fits and starts signal an identical outcome, after breaking below its red and black dashed rising support lines in 2020 and 2021 (on the right side of the chart), the S&P 500 is still trading below both levels. Furthermore, the heightened volatility that unfolded from August to October is a tell-tale sign that the 2018-2019 analogue could eventually rear its ugly head.

In addition, the S&P 500’s RSI (Relative Strength Index) currently signals overbought conditions. Approaching 72, prior readings of this magnitude preceded major tops in 2020 and heightened volatility in 2021.

The bottom line?

The S&P 500’s medium-term outlook puts the precious metals on high alert. I’ve mentioned on several occasions that the PMs tend to bottom approximately three months after the general stock market tops. And while the exact date of the S&P 500’s precipice remains unclear, the PMs should suffer three months (or so) of bearish price action once the S&P 500 meets its maker.

Furthermore, the U.S. equity benchmark is now entering a much tougher macroeconomic environment. With the Bank of Canada (BOC) and the Bank of England (BOE) already reducing their asset purchases, the U.S. Federal Reserve (FED) is likely next in line. And with liquidity the main driver of the S&P 500’s strong performance, investors are unlikely to celebrate the dry season.

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.

Very Long-term MACD Sell Signal for Gold

While short-term price movements often garner the most attention, it’s important to remember that gold’s long-term downtrend remains intact. Case in point: despite the yellow metal’s weekly rally making plenty of noise, the MACD indicator was completely silent. Still, showing a clear sell-signal on the right side of the chart below (at the bottom), the yellow metal’s superficial strength is 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.

For more context, I wrote previously:

With February’s monthly close the last piece of the puzzle, the MACD indicator’s sell-signal is now perfectly clear. If you analyze the chart below (at the bottom right), you can see that the MACD line has crossed the signal line from above – a development that preceded significant drawdowns in 2008 and 2011.

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.

Only a shade below the 2011 high, today’s MACD reading is still the second-highest reading in the last 40 years. More importantly though, if you analyze the chart below (the red arrows at the bottom), the last four times the black line cut through the red line from above, a significant drawdown occurred.

Also ominous is that the magnitude of the drawdowns in price tend to coincide with the magnitude of the preceding upswings in MACD. And with today’s reading only surpassed by 2011, a climactic move to the $1,250/$1,450 range isn’t out of the question for gold. The above is based on how low gold had previously declined after a similarly important sell signal from the MACD

Now, the month is not over yet, so one might say that it’s too early to consider the sell signal that’s based on monthly closing prices, but it seems that given the level that the MACD had previously reached and the shape of the top in the black line, it makes the situation so similar to 2011/2012 that the sell signal itself is just a cherry on the bearish analytical cake.

Considering the reliability of the MACD indicator 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.

The USD Index (USDX)

Despite the USD Index’s recent struggles, non-commercial (speculative) futures traders are still riding with the greenback. After an immaterial decline in net-long positioning last week, investors’ quiet confidence signals that brighter days are ahead for the U.S. dollar.

Please see below:

Source: COT

More importantly, though, with prior periods of extreme pessimism followed by monumental rallies in the USD Index, unless ‘this time is different,’ it’s simply a matter of when, not if, the U.S. dollar reasserts its dominance.

To explain, I wrote previously:

When net-speculative short interest as a percentage of total open interest (based on the CoT data) became extremely high in 2014 and 2018, the USD Index recoded two of its sharpest rallies in history. How sharp? Well, let’s take a look at how things developed in the past – after all, history tends to rhyme.

Let’s focus on what happened when the net speculative positions were significantly (!) negative and then they became significantly (!) positive, without paying attention to any tiny moves (like the one that we saw last summer).

In short, rallies that followed periods of extreme pessimism include:

• The big 2008 rally (over 16 index points)
• The big 2009 – 2010 rally (over 14 index points)
• The 2011 – 2012 rally (over 11 index points)
• The 2013 rally (“only” over 5 index points)
• The big 2014 – 2015 rally (over 20 index points)
• The 2018 rally (over 15 index points)

The current rally started at about 89, so if the “normal” (the above shows what is the normal course of action) happens, the USD Index is likely to rally to at least 94, but since the 5-index point rally seems to be the data outlier, it might be better to base the target on the remaining 5 cases. Consequently, one could expect the USD Index to rally by at least 11 – 20 index points, based on the net speculative positions alone. This means the upside target area of about 105 – 114. Consequently, a comeback to the 2020 highs is not only very likely, but also the conservative scenario.

On top of that, while the recent downtrend has invalidated the USD Index’s 2017-2018 analogue, it’s important to remember that several other catalysts support the greenback’s uprising. For one, the USD Index’s long-term breakout remains intact, and when analyzing from a bird’s-eye view, the recent weakness is largely inconsequential.

Please see below:

Second, despite a temporary breakdown below its April lows and its medium-term rising support line, the USD Index stopped at the 76.4% Fibonacci retracement level (it’s visible as 23.6% because the chart provider doesn’t support the above-mentioned retracement directly – it’s symmetrical, so we can use the tool in the reverse direction as well). The breakdown below the rising support line and the April bottom is not confirmed, which means that it’s still prone to reversal.

As a result, the greenback may have already formed a medium-term bottom.

Please see below:

Moreover, please note that the correlation between the USD Index and gold is now strongly negative (-0.9) and it’s been the case for several days now. The same thing happened in early January 2021 and in late July – August 2020. These were major tops in gold.

Even more revealing, USD-Index support has also occurred alongside yellow-metal resistance. If you analyze the orange line above, you can see that gold has officially hit its 38.2% Fibonacci retracement level (and the yellow metal actually closed below this level on May 7). Thus, a reversal of fortunes is likely to occur in the coming weeks – perhaps in the coming days, or even hours (the intraday reversals tend to work on a short-term basis).

The bottom line?

After regaining its composure, ~94.5 is likely the USD Index’s first stop. In the months to follow, the USDX will likely exceed 100 at some point over the medium or long term.

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

Third on the list, a material drawdown of the NASDAQ 100 could eventually rattle U.S. equities. And with the NASDAQ 100/S&P 500 ratio once again falling below its dot-com bubble peak, a reversion to the mean would elicit plenty of fireworks.

To that point, given the USDX’s strong negative correlation with the NASDAQ 100, a material reset could propel the greenback back to its March highs. Moreover, following a short-term consolidation, the USDX could even exceed those previous highs.

Finally, relative outprinting by the European Central Bank (ECB) remains of critical importance. Last week, the FED/ECB ratio increased by 0.25%, while the EUR/USD increased by 1.19%. However, given that the ratio has declined by more than 19% since May, by nearly 5% over the last six weeks and is showing a material divergence on the right side of the chart below, the EUR/USD still has some catching up to do.

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.

The Gold Miners

With the GDX ETF punching a hole through its glass ceiling, the senior miners are now witnessing an environment that’s beyond their wildest dreams: sunshine, clear skies and a utopia that’s eluded them since the beginning of the New Year. However, while leaving the paradise is often more difficult than arriving, the GDX ETF’s recent vacation is likely coming to an end. And with the senior miners about to resume the daily grind of real life, their optimism will likely fade with the tropical sun.

To explain, while the GDX ETF remains on cloud nine, the HUI Index (a proxy for gold mining stocks) has already left the resort. With the latter’s long-term outlook still intact and its broad head & shoulders pattern remaining on schedule, I wrote previously that the right shoulder would likely form after the HUI Index reaches 300. And after closing at 301.72 on May 7, the BUGS (after all, HUI is called the Gold Bugs Index) are currently living up to expectations.

Please see below:

Moreover, while corrective short-term upswings within a medium-term downtrend can feel discouraging, it’s important to remember that similar instances occurred in 2008 and 2012. Remember: Tom Petty & The Heartbreakers warned us that the waiting is the hardest part. However, in the end, the wait should be more than worth it.

To explain, note that the 2007 – 2008 and the 2009 – 2012 head and shoulders patterns didn’t have the right shoulders all the way up to the line that was parallel to the line connecting the bottoms. I marked those lines with green in the above-mentioned formations. In the current case, I marked those lines with orange. Now, in both 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.

That’s why I previously wrote that “it wouldn’t be surprising to see a move to about 300 in the HUI Index”. And that’s exactly what we saw. To clarify, one head-and-shoulders pattern – with a rising neckline – was already completed, and one head-and-shoulders pattern – with a horizontal neckline – is being completed, but we’ll have the confirmation once miners break to new yearly lows.

For more context, I wrote previously:

The recent rally is not a game-changer, but rather a part of a long-term pattern that’s not visible when one focuses on the short-term only.

The thing is that the vast majority of individual investors and – sadly – quite many analysts focus on the trees while forgetting about the forest. During the walk, this might result in getting lost, and the implications are no different in the investment landscape.

From the day-to-day perspective, a weekly – let alone monthly – rally seems like a huge deal. However, once one zooms out and looks at the situation from a broad perspective, it’s clear that:

“What has been will be again, what has been done will be done again; there is nothing new under the sun.” (-Ecclesiastes 1:9)

The rally is very likely the right shoulder of a broad head and shoulders formation. “Very likely” and not “certainly”, because the HUI Index needs to break to new yearly lows in order to complete the pattern – for now, it’s just potential. However, given the situation in the USD Index (i.a. the positions of futures traders as seen in the CoT report, and the technical situation in it), it seems very likely that this formation will indeed be completed. Especially when (not if) the general stock market tumbles.

In addition, three of the biggest declines in the 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 decline exceeded the size of the head of the pattern.

Can we see gold stocks as low as we saw them last year? Yes.

Can we see gold stocks even lower than at their 2020 lows? Again, yes.

Of course, it’s far from being a sure bet, but the above chart shows that it’s not irrational to expect these kind of price levels before the final bottom is reached. This means that a $24 target on the GDX ETF is likely conservative.

In addition, mining stocks are currently flirting 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 high.
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.

I know, I know, this seems too unreal to be true… But wasn’t the same said about silver moving below its 2015 bottom in 2020? And yet, it happened.

Keep in mind though: scenario #2 most likely requires equities to participate. In 2008 and 2020, the sharp drawdowns in the HUI Index coincided with significant drawdowns of the S&P 500. However, with the words ‘all-time high’ becoming commonplace across U.S. equities, the likelihood of a three-peat remains relatively high.

Circling back to the GDX ETF, on May 7, the senior miners inched closer to their May 2020 high. And while the development may seem bullish on the surface, the price action actually creates symmetry between the GDX ETF’s left and right shoulders. With May 2020’s peak occurring at nearly the same level, a move lower from here would only enhance the validity of the GDX ETFs H&S pattern.

On top of that, this is the third time that the GDX ETF has poked its head above the upper trendline of its roughly one-and-a-half-month channel. An ominous sign, the GDX ETF’s swoon in late 2020/early 2021, occurred precisely after the senior miners delivered their third act. Furthermore, a small breakout without confirmation is akin to a promise from a friend that can’t keep his word. Thus, with the GDX ETF still underperforming gold on a relative basis, it’s important to analyze the recent price action within its proper context.

Please see below:

For more context, I wrote on May 5:

The history might not repeat itself, but it does rhyme, and those who insist on ignoring it are doomed to repeat it. And there’s practically only one situation from more than the past four decades that is similar to what we see right now.

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

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

Why should I – the precious metals investor care?

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

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

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

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

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

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

“Wait, you said something about three months?”

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

The reason is that after the 1929 top, gold miners declined for about three months after the general stock market started to slide. We also saw some confirmations of this theory based on the analogy to 2008. 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 target is also confirmed when applying the Fibonacci extension technique. To explain, if we take the magnitude of the GDX ETF’s recent peak-to-trough decline and extrapolate it by multiplying it by the Fibonacci sequence, the output results in a target adjacent to $21. I used the Fibonacci retracement tool to show that in the above chart. Interestingly, the same technique was useful in 2020 in order to time the March bottom.
3. The broad head-and-shoulders pattern with the horizontal neckline at about $31 points to the $21 level as the likely target.

Likewise, when analyzing the situation through the lens of the GDXJ ETF, the junior miners are eliciting the same bearish signals. If you analyze the chart below, you can see that despite the recent strength, the GDXJ ETF is still trading below its medium-term rising support line (the thick black line below). More importantly, though, with the junior miners failing to reclaim this key level, their bearish H&S pattern remains intact.

Even more ominous, 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 has failed to live up to the hype.

To explain, I wrote previously:

GDXJ is underperforming GDX just as I’ve been expecting it to. 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, once the general stock market suffers a material decline, the GDXJ ETF’s underperformance will likely be heard loud and clear.

Please see below:

So, how low could the GDXJ ETF go?

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

Also, signaling more pain ahead, the HUI Index has verified the breakdown below the rising neckline of its bearish H&S patterns. And while the HUI has once again poked their heads above their rising neckline, it was less than a month ago that the same development proceeded a sharp decline.

Please see below:

Regarding the XAU Index, Philadelphia’s finest remains bearish beneath the surface. Case in point: after rising visibly above its H&S neckline and its declining resistance line, the XAU Index elicits a strong outward appearance. However, with the bullish breach far from verified and the benchmark also colliding with its triangle-vertex-based reversal point, the XAU Index could be signing a vastly different tune in the near future.

Moreover, the HUI Index/S&P 500 ratio has recorded a major, confirmed breakdown. And with the ratio nowhere near recapturing its former glory, it’s another sign that a storm is brewing. Moreover, after moving back and forth for the last few months, not only has the HUI Index/S&P 500 ratio broken below its rising support line (the upward sloping black line below), but the ratio has also broken below the neckline of its roughly 12-month H&S pattern (the dotted red line below). As a result, given the distance from the head to the neckline, the HUI Index/S&P 500 ratio is on a collision course back to (at least) 0.050.

Please see below:

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

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

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

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

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

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

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

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

In conclusion, with gold, silver and mining stocks staying at the same springtime resort, their departure from reality implies plenty of jet lag at the end of their trip. And with the clock ticking, passengers boarding and their flight nearing takeoff, a return to real life is just around the corner. Moreover, with the USD Index long overdue for some R & R, a reversal of fortunes could leave the precious metals suffering severe envy. Thus, while gold, silver and mining stocks have enjoyed nothing but sun, sand and surf over the last few weeks, the pile of work that awaits them will likely keep them swamped 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 approaching 57. However, far from a medium-term bottom, the latest reading is still more than 47 points above the 2016 and 2020 lows.

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

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

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?

We 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.

Gold

After surging to new heights on high volume, the sky is the limit for the yellow metal… right? Well, with the early-morning rally fizzling into the close, gold ended the day on May 7 well below its intraday highs. Thus, while the short-term explosion elicited the highest daily up volume for gold in 2021, the ominous intraday reversal signals that things aren’t as celebratory as they appear.

Case in point: investors rejected gold’s attempt to rally above its rising support line (which is now resistance) and closing below the 38.2% Fibonacci retracement level doesn’t exactly elicit optimism. However, even if gold remains off the beaten path, a wall of resistance (the declining resistance line) is present at roughly $1,860. The bottom line? While a move higher is still possible, it’s not my base case, and gold still remains on a medium-term path toward lower prices.

Please see below:

Likewise, while gold’s corrective upswing was larger than I had anticipated, the recent rally is not a game-changer.

The size of the March – now rally is almost exactly the same as the late-November 2020 – early January 2021 rally. Why is this notable?

Because of the similarity to the final top before the 2012-2013 slide that I mentioned before.

The March 2021 low formed well below the previous low, but as far as other things are concerned, the current situation is similar to what happened in 2012.

The relatively broad bottom with higher lows is what preceded both final short-term rallies – the current one, and the 2012 one. Their shape as well as the shape of the decline that preceded these broad bottoms is very similar. In both cases, the preceding decline had some back-and-forth trading in its middle, and the final rally picked up pace after breaking above the initial short-term high.

Interestingly, the 2012 rally had ended in huge volume, which is exactly what we saw on Friday. To be 100% precise, the 2012 rally didn’t end then, but it was when over 95% of the rally was over. Gold moved very insignificantly higher since that time. Most importantly, though, it was the “dollars to the upside, hundreds of dollars to the downside” situation. And it seems that we are in this kind of situation right now once again.

Interestingly, back in 2013 gold started its gargantuan (on a side note, the Gargantua and Pantagruel book where this word comes from is one of the most ridiculous, obscene and oddly entertaining books I’ve ever read) slide from about $1,800 and it is not far from this level also today.

Moreover, let’s keep in mind that the RSI indicator just closed at 67.98, so it’s very close to 70, and gold tends to top when this indicator moves to 70. The upside seems very limited.

“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 ~$1,450 to $1,500 range.

And why is that?

Well, if you analyze the long-term chart below, you can see that the yellow metal 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.

Conversely, if the 2008 analogue repeats – and a crisis of confidence erupts across U.S. equities – the PMs could move substantially lower. When combining an equity shock with an USD Index’s resurgence, the yellow metal could bottom at roughly $1,400 (or even ~$1,350). Similarly, while the MACD indicator (on gold’s 40-year chart near the top of today’s edition) signals a bottom in the ~$1,200 to ~1,350 range, to be perfectly clear, ~$1,450 to $1,500 is the most likely outcome.

If you analyze the red arrow in the lower part of the above chart (the weekly MACD sell signal), today’s pattern is similar not only to what we saw in 2011, but also to what we witnessed in 2008. Thus, if similar events unfold – with the S&P 500 falling and the USD Index rising (both seem likely for the following months, even if these moves don’t start right away) – the yellow metal could plunge to below $1,350 or so. The green dashed line shows what would have happened to the gold price if it had not declined as much as it did in 2008.

In addition, relative to 2011-2013, today’s price action is also a splitting image. For starters, gold invalidated the breakout above its 2011 highs. Invalidations of breakouts are sell signals, and it’s tough to imagine a more profound breakout that could have failed.

Furthermore, if you analyze the right side of the chart above (the bottom section), you can see that the MACD indicator has sprouted a tiny weekly buy signal. However, it’s important to remember that the same signal emerged in mid-2008 – which confirmed the previous rally but had no bullish implications for the future. Case in point: following the reading in 2008, gold’s volatility increased, and the yellow metal suffered several declines before finding a lasting bottom in 2009. Thus, the recent reading is nothing to write home about. I marked both cases with red, dashed lines.

If that wasn’t enough, the gold/ Dow Jones Corporate Bond Index (Total Return) ratio recorded two meaningful developments:

1. The ratio invalidated the breakdown below its rising support line (the red line on the right side of the chart below).
2. The ratio moved above its 50-week moving average (the blue line below).

However, it’s important to remember that the ratio did the exact same thing in 2012-2013 before moving substantially lower.

Please see below:

To explain, if you analyze the middle of the chart above, you can see that the ratio recorded a countered rally, jumped back above its rising support line and 50-week moving average and then… collapsed. And with a similar pattern forming on the right side of the chart, the ratio is looking more and more like a widow-maker. Furthermore, when factoring in mining stocks’ bearish H&S patterns, the fundamental headwinds confronting gold and the strong likelihood of a medium-term swoon in the stock market, you can already hear the yellow metal’s death knell tolling in the distance.

Silver

While silver’s recent outperformance may seem appetizing, the white metal is known to overpromise and underdeliver. Case in point: after recording several false breakouts, every prior display of strength ended with extreme disappointment. And while bearish medium-term implications should take precedence over short-term spurts, the white metal is once again seducing investors like it did in late 2019/early 2020.

Please see below:

To explain, 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.

Also, let’s keep in mind that silver tends to outperform gold on a very short-term basis right before big declines, and that’s what it’s been doing for a few days now. Even in today’s pre-market trading, gold is up by ~0.2% and silver is up by ~1%.

For context, I wrote previously:

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 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.

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:

To explain, I wrote previously:

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.

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 stabilized. With the PMs exhibiting negative relationships with the U.S. dollar, their short-term behavior is similar to what we should expect over the medium term. More importantly, though, with the USD Index beginning to resemble a caged animal, once the greenback is released back into the wild, the PMs are likely to be its first meal.

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 $1,700, 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.

To move forward, how does the GDX downside target compare to gold’s downside target? If, at the same time, gold moves to about $1,700 and miners are already after a ridiculously big drop (to $31-$32 in the GDX ETF, or lower), the binding profit-take exit price of your GDX ETF will become $32.02 (those with higher risk tolerance might lower it to $31.15 or so, but moving it lower seems just too risky).

At this time, the final GDX target (the one that would correspond to gold at $1,500 or so) is still unclear. The $17 - $23 area seems probable, especially if the general stock market slides once again. It’s too early to say with any significant level of certainty. Gold is providing us with a clearer final target, so that’s what we’ll focus on. And most importantly – we’ll focus on gold’s performance relative to the USD Index.

Overview of the Upcoming Part of the Decline

1. It seems likely to me that the current corrective upswing is close to being over if it isn’t already, given gold’s intraday reversal on Friday and its weekly close in the $1830s .
2. After miners slide once again in a meaningful and volatile way, but silver doesn’t (and it just declines moderately), I plan to switch from short positions in miners to short positions in silver (this could take another 1-2 weeks to materialize). I plan to exit those short positions when gold shows substantial strength relative to the USD Index, while the latter is still rallying. This might take place with gold close to $1,450 - $1,500 and the entire decline (from above $1,700 to about $1,475) would be likely to take place within 1-12 weeks, and I would expect silver to fall 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 gold has already declined substantially) is likely to be the best entry point for long-term investments, in my view. This might happen with gold close to $1,475, but it’s too early to say with certainty at this time. In other words, the entire decline could take between 1 and 12 weeks, with silver declines occurring particularly fast in the final 1-2 weeks.
3. If gold declines even below $1,500 (say, to ~$1350 or so), then it could take another 10 weeks or so for it to bottom, but this is not what I view as a very likely outcome.
4. 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 would be likely to bottom about three months after the general stock market tops. If the general stock market puts the final top in the first half of May (which seems quite likely given NASDAQ’s top in late April), then we might expect the precious metals sector to bottom sometime in August.
5. The above is based on the information available today, and it might change in the following days/weeks.

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: Dear Przemyslaw,

I wanted to take this opportunity to tell you what a great job I think you are doing. I find your work both informative and entertaining. I had a couple of questions that I hoped you could answer.

First, I noticed on Friday that the 10-Year Treasury yield after hitting its low bounced rapidly, closing in positive territory, forming what looks like a potential double bottom. Is this something you see as a possibility?

Second, gold is approaching the top of the descending channel that was created during its medium-term downtrend. I believe this area is somewhere around 1855. I also noticed the GDX last major top was around $38.50 or so. I was wondering if you see the potential for gold to reach this 1855 area and get rejected at the same time when the GDX reaches the 38.50 area forming a double top with a downside target of $21 or so. Thanks- your opinion is appreciated.

A: Thank you for the kind words – I really appreciate them a lot.

The double bottom in the 10-year yield is quite possible, in my view. The yield’s catch-up could be significant, and it could trigger a massive slide in the PMs – just like I wrote earlier today.

As for the possibility for gold to move to about $1,855 and the GDX ETF to move to about $38.50 – it’s certainly possible, and such a move by itself would not necessarily invalidate the bearish outlook. Still, based on Friday’s intraday reversal, we definitely don’t need to see this additional upswing before the slide – the PMs could decline right away. Which outcome is more likely? I think that decline without an additional upswing is a bit more likely, but the most important thing is that even if PMs move higher, I don’t think they would rally beyond the above-mentioned levels and that such a move higher would be just a blip on the radar screen – something that nobody will remember in a few months.

Q: PR,

Months ago you forecasted gold bottoming in the high $1,600’s/low $1,700’s, but subsequently changed your view that gold would drop to $1,400 in March/April. As the latter hasn’t happened, and real interest rates are likely to go more negative with increases in inflation outpacing increases in the 10-year (also with YCC likely in the cards at some point), do you think that your original forecast might have been right?

A: This might be the case, but I think that the lower target area is still more likely. The thing that changed really notably recently is the very weak performance of the NASDAQ, which is a canary in a coal mine suggesting that (rather) sooner or later the precious metals market is going to get a substantial bearish push from stocks, which makes the lower values of PMs and – in particular – mining stocks more likely.

While I thought that we were already in the final decline, it has likely turned out that this was still the consolidation stage – just like what we saw in the first half of 2012 – but one in which gold would be slowly declining anyway.

I previously wrote that the situation is similar to 2008 in a way and to 2012-2013 in a slightly different way. When I’m looking at it now, it’s quite normal that the gold market is mixing both previous performances. But it’s always easy to see things with the benefit of hindsight.

In 2008, before the final slide, we had clearly lower lows as well as lower highs. During the 2012-2013 consolidation we had a more or less horizontal pattern that was then followed by the final slide. Right now, we have something in between – we have lower highs and lower lows, but it’s not as clear as it was in 2008.

Back in 2008, it took gold 29 weeks to move from the initial (March 2008) top to the final (October 2008) top.

Back in 2011-2013, it took gold 55 weeks to move from the initial (September 2011) top to the final (October 2013) top.

The arithmetic average of the above is 42 weeks, and last week was the 39^th week after the August 2020 top. If gold stops here or shortly, it will be almost right in the middle of the similarity between both periods.

Summary

To summarize, even though it doesn’t seem to be the case based on last week’s price change in gold, it seems that its days are numbered. This is based not only on how miners responded to gold’s bullish lead (barely), but also based on silver’s outperformance, and price levels reached throughout the precious metals sector. From the long-term point of view, the current situation seems similar to what we saw in the second half of 2012, while from the short-term point of view it seems similar to what we saw at the beginning of 2021. While the very near term remains unclear (Friday’s reversal might have been the final top, but there’s no certainty there), the outlook for the next several months remains very bearish.

After the sell-off (that takes gold to about $1,350 - $1,500), we 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.

By the way, we’re currently providing you with a possibility to extend your subscription by a year, two years or even three years with a special 20% discount. This discount can be applied right away, without the need to wait for your next renewal – if you choose to secure your premium access and complete the payment upfront. The boring time in the PMs is definitely over and the time to pay close attention to the market is here. Naturally, it’s your capital, and the choice is up to you, but it seems that it might be a good idea to secure more premium access now, while saving 20% at the same time. Our support team will be happy to assist you in the above-described upgrade at preferential terms – if you’d like to proceed, please contact us.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full speculative short positions (300% of the full position) in 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: $24.12; 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: $39.87; 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: $94.87; 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 upside profit-take exit price: unclear at this time - initially, it might be a good idea to exit, when gold moves to $1,512.

Gold futures upside profit-take exit price: $1,512.

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