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Miners Facing a Long Slide Ahead

November 18, 2020, 9:44 AM Przemysław Radomski , CFA

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Despite a recent decline in the U.S. Dollar Index and small jumps and rallies aside, miners have not moved upwards, defying the usual logic that as the USD Index moves down, precious metals move up. Bearish headwinds for the coming weeks remain strong, a harbinger of a longer slide.

In yesterday’s analysis, I told you about the bearish clues coming from the relative performance of miners vs. gold and stocks, and gold vs. the USD Index. In today’s analysis, I’m going to tell you that we saw even more of those signs, which strengthened the bearish implications of the previous ones. This in turn adds to the strength of the other – more profound – bearish factors such as the broad bottom in the USD Index.

Let’s start today’s analysis by saying that miners have just closed at the second lowest daily close since early July.

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This fact alone should make one question the validity of any bullish argument for the short term. Sure, gold, silver, and mining stocks have explosive potential in the following years. The world is likely to try an attempt to inflate its trouble away and gold is likely to greatly benefit from it along with the rest of the precious metals sector. But in the short term, markets can get ahead of themselves, just like they did in August. They then have to correct before rallying once again.

And if during these times they get a powerful bearish boost, for instance from a rallying USD Index, the corrective downswing could be profound.

One more detail about the miners – please note that it’s the first time when the GDX ETF declined once again without a meaningful rally after bottoming near the $37 level. Both previous bottoms: the one that we saw in September and the other in late October, were followed by rallies above $40. This time, the rally was tiny – and it was such even though the USD Index declined and the general stock market moved higher in the last several days.

The short-term indications that I’ve been commenting on are pointing to the bigger decline having already started, but also being relatively far from over. In fact, based on miners’ weak performance it seems that they just can’t wait to slide further.

Please note that yesterday was yet another day when miners moved higher initially only to decline during the day.

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The miners’ daily decline is particularly bearish given no major decline in stocks (just a tiny move lower) and a move lower in the USD Index. The latter “should have” made gold, silver, and miners increase in value. Instead, we saw declines.

Taking in the last several days, silver is stronger than gold while miners are weaker than gold. As I discussed in my previous analyses, that’s exactly what tends to take place right before bigger declines, so the implications are bearish.

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Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager

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Nov Market Overview

Gold Market Overview

The U.S. passed a milestone! The federal debt in private hands surpassed 100 percent of GDP measured quarterly, in the second quarter of 2020. On an annual basis, it would exceed the size of the economy next year, due to a massive fiscal stimulus and a plunge in revenues amid the coronavirus crisis (however, the fiscal deficits and debts were already increasing significantly prior to the outbreak of pandemic). According to the Congressional Budget Office, the fiscal deficit will reach $3.3 trillion in 2020, more than triple the shortfall recorded last year. At 16.0 percent of GDP, the budget deficit would be the largest since the World War II. Is the US waging a war I don’t know about?

Read more in the latest Market Overview report.

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