Gold Forecast: If Gold Started Plunging, Is the Miners’ Fate Already Sealed?

The star pattern turned out to be an accurate prediction of gold's decline. If the dramatic downturn stage begun, what will happen to the GDXJ?

In yesterday’s analysis, I emphasized that gold’s shooting star reversal was a very bearish indication for gold. Indeed, gold declined. What’s next?

Quoting my yesterday’s analysis:

Last week was full of events, but the most important one clarified after Friday’s closing bell – gold formed a reversal “shooting star” candlestick.

The implications are just what you think they are. After a sharp run-up, the rally has run its course, and the yellow metal is now about to slide again.

Let’s take a closer look.

The corrective upswing was quite sizable and sharp. It was bigger than what we saw in July and August 2022, and this time, gold needed just two weeks to rally, instead of four.

Back in mid-2022, it then took gold three weeks to decline to more or less where the corrective rally started. So, yes, gold fell a bit faster than it had climbed.

History rhymes, so this time, the decline could be sharper than the rally as well. And since the rally took just two weeks… It looks like the next week or two might be very interesting for gold investors/traders. And bearish.

Actually, the next ~1.5 weeks because this week’s trading will be limited due to Thanksgiving.

You might be wondering why I forecast that the gold price would be about to “slide” instead of just moving lower in a more or less regular manner.

The analogy to what gold did in 2013 is one of the major reasons.

The first thing that you can notice on the above chart is that it looks just like the previous one, even though they are almost a decade apart. And that’s true.

How is that even possible, given different economic and geopolitical realities? It’s possible because the key drivers behind decisions to buy and sell remain the same: fear and greed. Those don’t change, people tend to react similarly to similar price/volume patterns.

Of course, each situation is specific, which is why history doesn’t repeat itself to the letter, but it does tend to rhyme.

When you compare the situations marked with orange on both charts, you’ll realize that we’re most likely in a situation where gold is just before a major slide.

Consequently, last week’s “shooting star” candlestick is not “just” a reversal pattern. It’s a reversal pattern that likely marks the beginning of a new stage of the bigger self-similar pattern. A stage that is characterized by a dramatic downswing.

Gold declined by almost $15 yesterday, so it seems that the above-mentioned decline is already underway.

Mining stocks haven’t declined profoundly yet, but that’s probably due to the fact that stock market prices haven't declined so far either.

As gold declines more, miners are likely to follow it lower pretty much regardless of what the stock market does, but still, it seems very likely to me that the latter will slide anyway. And yes, stock prices’ decline would be likely to result in much lower mining stock values.

In other words:

• If gold declines significantly but stocks don’t, miners are likely to decline significantly anyway.
• If gold and stocks decline significantly, miners are likely to decline in an extreme manner.

In my view, the latter is the most likely outcome for the following weeks/months.

I previously wrote that the S&P 500 Index failed to break above the 4,000 level and its 38.2% Fibonacci retracement level. At the moment of writing these words, the S&P 500 futures are trading at about 3,950. This resistance remains intact. Stocks have been unable to move above those levels, which means that the bearish implications of their failed attempt remain in place.

The current medium-term trend remains down, and the above paragraph indicates that it’s about to resume.

As I wrote earlier, this is likely to have profoundly bearish implications for mining stocks. It’s also the case with regard to silver prices, but let’s keep in mind that silver tends to catch up with gold and mining stocks in the final part of a given move. Consequently, miners could decline profoundly first, and silver could decline profoundly a bit later.

Summary

Summing up, while the precious metals sector moved higher last week, it seems that it’s just a part of a bigger – bearish – analogy to what we saw in 2008. I realize that volatile upswings generate a lot of emotions, but taking a calm, broad look at the markets shows that nothing really changed.

Last week’s shooting star candlestick in gold indicates that the rally is over.

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

* * * * *

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.

********