Gold Forecast: Gold Stocks Get into an Elevator With the S&P 500 – Up or Down?

As might have been deduced, the stock market invalidated its recent upswing. What's more, it dragged gold miners down. But is this really a bearish story?

In yesterday’s analysis, I wrote that the stock market was likely to invalidate its recent upswing above its 38.2% Fibonacci retracement level, and that’s exactly what happened.

I wrote the following:

We just saw a small attempt to break above the 38.2% Fibonacci retracement, and I doubt that this breakout will be confirmed. The “why” behind it is currently the most interesting analogy that we see on this market.

Please take a look at the areas marked with red rectangles. In all those cases, the S&P 500 index rallied on big volume at first, and then the volume declined over the course of a few weeks. And as that happened, the price approached its top.

All three previous important tops that we saw this year were accompanied by this indication.

We also see it right now.

Even more interestingly, the volume levels that have just been seen are similar to the ones that accompanied previous tops.

Consequently, it seems that the end of the rally is near. This is likely to have very bearish implications for junior mining stocks.

Stocks declined and ended the day below the above-mentioned 38.2% Fibonacci retracement and the 4,000 level, which has profoundly bearish implications for the following weeks.

Indeed, junior miners’ prices fell substantially during yesterday’s trading.

When viewed broadly, a drop of more than 5% is not that significant, but it is, in my opinion, not so huge yet. Silver’s price was down more than gold’s (1.42% vs. 0.78%), but junior miners declined the most. Even more than senior miners – the GDX ETF was down by 4.01%.

No wonder – junior miners’ prices have the strongest link with the performance of the general stock market, and as the rallying stocks uplifted juniors in the previous weeks, now they are likely to drag juniors lower. Much lower.

I previously compared the current situation to the one from March and April 2022 in the following way:

The ETF moved higher on Wednesday and then lower on Friday. Most importantly, it moved in near-perfect tune with how it had moved earlier this year – in March and April.

I marked both situations with red rectangles. The initial rally was accompanied by huge volume, which then waned over the following days and weeks. That’s pretty much what we saw in November – and earlier this year.

Moreover, the GDXJ touched its upper border of the flag pattern once again. It also touched the resistance levels provided by the previous highs (moved slightly above them) and the 38.2% Fibonacci retracement level based on the entire 2022 decline.

This means that the top is likely in or at hand.

Juniors just moved back below their previous November high as well as back below their August high. This invalidation – similarly to the invalidation in stocks – suggests that lower values of mining stocks are likely just around the corner.

What about gold’s outlook?

Well, gold is behaving just like it was likely to after the powerful weekly reversal that we saw a bit over a week ago.

Last week it reversed to the upside, but the volume on which it did so was weak, so it wasn’t believable.

And indeed, this week gold is moving lower.

What’s next? As stocks are likely about to slide, and so is gold, the prices of mining stocks are likely to tumble – rather sooner than later.

Naturally, the above is up-to-date at the moment when it was written. When the outlook changes, I’ll provide an update. If you’d like to read it, I have great news for you. As soon as you sign up for my free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Thank you.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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