Gold Price Forecast: What’s Going On With Mining Stocks?

Hey, you want to hear a joke that’s just not funny?

Gold miners’ performance.

I told you it wasn’t funny. It’s very informative though.

With gold stocks completely ignoring gold’s gains, the myriads of factors that I’ve been discussing for weeks might not have been in place, and the outlook for the precious metals sector would be bearish anyway. Gold stocks’ weakness is so ubiquitous and so extreme that it’s a critical sell signal on its own.

It was just yesterday when I emphasized that it was yet another week when the HUI Index – the flagship proxy for the gold – declined by about 5 points while gold moved higher by about $15, and yesterday we saw exactly the same kind of performance.

Gold ended yesterday’s session $11.60 higher, and what did gold stocks do? The HUI Index was down by 1.21 (0.48%), the GDX ETF was down by $0.18 (0.55%), and the GDXJ ETF was down by 0.45 (1.05% – so, profits on our short position have increased further).

Sometimes gold stocks take the lead of the general stock market, which… makes yesterday’s decline even more bearish because the general stock market ended yesterday’s session higher.

Gold miners sell gold and/or discover it to develop a given property and sell gold later. If the price of gold increases, it’s obvious that the prices of gold stocks’ shares should increase, as their current or future profits depend on gold’s price. Sure, miners will sell gold at a future price, not today’s price, but a higher price today means higher price expectations in the future, so it doesn’t really matter that there’s this delay. Gold price up should equal gold stocks’ prices up. If it doesn’t, it means that something is very wrong.

The thing that’s very wrong is that the precious metals market hasn’t yet completed its final decline and therefore it’s reluctant to respond to bullish indications. What we’re seeing in gold stocks is a screaming and extreme sign that the sector is going to decline in the following weeks and months. And it’s not the first time we’ve seen something like that! We saw exactly the same thing in 2013 before a massive slide.

Yes, the fundamental situation for gold, in the long run, is very positive. Yes, it’s even more positive for silver. And yes – right after the bottom, gold stocks are likely to outperform gold and soar profoundly.

BUT.

It’s not likely to happen until we see a huge price decline first. And it’s this huge price decline that we’re very likely to profit from even before we get to this mother-of-all-buying-opportunities. And what’s best is that thanks to the profits on the short position, we’ll most likely be able to buy even more extremely discounted gold, silver, and mining stocks.

Give the Charts a Look

Let’s jump into the short-term charts for details of what happened yesterday, starting with senior mining stocks.

The small decline seems irrelevant, but it is very bearish when one compares it with what happened in gold.

The same goes for the junior gold miners, which declined even more than seniors.

Please note how perfect the verification of the breakdown to new yearly lows was. The GDXJ moved back and forth in a classic ABC format and thus created a flag pattern right below the previously broken support level which –this way – was verified as resistance. The volume was low, which means that the market is simply waiting for another downleg.

Silver has also confirmed the breakdown to new 2021 lows. Even though it came back up after declining profoundly, it didn’t move back above the previous 2021 lows in terms of the closing prices, nor did it move back above January intraday lows.

That’s a very bearish price action.

After surging above the neckline of its inverse (bullish) head & shoulders pattern, the USD Index backtested the breakout last week. In other words, the breakout was confirmed, and, so far this week, the USD Index has been moving slightly higher, further validating the above

Hold My Cup!

Please note that in addition to the inverse head-and-shoulders pattern in the USD Index, we can also see a bullish cup-and-handle pattern that I marked with a grey rectangle. This pattern confirms the bullish outlook for the US currency. Once the index gets above the previous 2021 highs, it’s likely to soar visibly once again – quite likely to the 97-98 range.

As I wrote earlier today, gold ended yesterday’s session $11.60 higher, and it has moved up by $6 so far today. Does it change much? While I honestly admit that this correction is a bit bigger than I expected it to be, it doesn’t change anything with regard to the outlook. It’s still just a corrective upswing within a bigger downtrend, in my view. And since the next triangle-vertex-based reversal is just around the corner (early next week), it wouldn’t be surprising to see a back and forth movement this week or even slightly higher gold prices. I don’t think it would change much though.

The short-term resistance is provided by the declining black line, as well as the mid-July lows and the $1,800 level, which is natural resistance, as it’s a round number.

Also, please note that gold has been mostly repeating its early-2021 performance. After declining sharply (January and June) and forming a double bottom with the second bottom slightly lower, it then corrected half of the decline forming more than one top close to the 50% retracement, and then declined sharply once again.

Back in February 2021, gold corrected about 76.4% of the decline (which is a less popular but still a Fibonacci retracement level – marked with blue). Right now, this retracement is just below the $1,800 mark. So, if history rhymes once again, gold will be likely to move close to $1,800 and then decline once again. At the moment of writing these words, gold is trading at $1,795 after having moved to $1797.15. So, the top could be in, and even if it’s not, it seems that it’s at hand.

Summary

To summarize, the corrective upswing in gold is over, and it seems that the big downswing in gold, silver, and mining stocks is already underway. I previously warned you that “the next few days may (!) bring some back-and-forth action instead of the decline’s continuation,” and I also wrote that it was unlikely that this would take place for long. It seems that it is exactly what happened – we saw some back and forth action, and while gold’s last week’s performance might seem bullish at first glance, neither gold’s volume, nor action in silver nor mining stocks confirm it. In fact, silver’s and junior miners’ breakdowns to new yearly lows were confirmed.

And as silver often moves in close relation to the yellow metal, when gold falls, Silver is likely to decline as well – it has probably already started its slide. The times when gold is continuously trading well above the 2011 highs will come, but they are unlikely to be seen without being preceded by a sharp drop first.

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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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