Gold Price Forecast: The Harbinger Of The Fall

What a beautiful day that was! Well, the weather varied in different places of the planet, so I don’t mean that literally. What I mean is that Mr. Market was generous and provided us with a major confirmation exactly when it was needed.

Friday’s performance was breathtakingly bearish, as miners declined a few times more than gold and – in particular – silver, which is exactly the thing that we tend to see at the beginning of a short-term decline.

But maybe it was a single-day event only? One swallow doesn’t make a summer.

The question is: was Friday’s session a swallow?

It wasn’t, and what we saw yesterday confirms it.

Gold moved higher and attempted to once again break above its declining resistance line. The move took place on relatively weak volume, which is exactly the opposite of what one should see as a sign of a breakout confirmation. What we saw yesterday was not (at least not yet) a bullish signal for gold. However, that’s not the most interesting thing that happened yesterday.

Silver did very little, and it’s not that informative on its own. It’s informative because it didn’t decline a lot. In particular, it didn’t catch up with mining stocks’ decline.

And this brings us to the main analytical course of today’s menu.

The Main Dish

Gold stocks didn’t rally back up despite the volatile nature of Friday’s decline and despite gold’s ~$12 rally. The general stock market was slightly up yesterday, so miners had no good reason not to rally. Unless…

Unless it’s the beginning of another big decline, and we are still very early in the process. In this case, it would be perfectly understandable for the mining stocks to behave this way.

Gold miners had all the reasons to erase a large part of their Friday’s declines, but they didn’t do so. What does it indicate for gold?

The GDX was up by $0.15, and the GDXJ was up by $0.38. So, they barely moved.

By the way, do you see how little it now takes for the MACD based on the GDXJ (lower part of the above chart) to flash a sell signal? The upcoming sell signal will (as it’s likely just ahead) be similar to only two events from the recent past – the January top and the June top.

What followed in both cases? Significant declines. Is this time different? You already know the answer. It’s highly unlikely.

Moving back to miners’ relative performance, if you take into account Friday’s and Monday’s sessions at the same time, you get the following price moves:

• Gold price is down by $6.8 (0.38%)
• Silver price is down by $0.05 (0.21%)
• GDX is down by $0.73 (2.24%)

Silver is holding up quite well while miners are strongly underperforming – that’s exactly what one should see at the beginning of a big move lower.

All in all, while the outlook for the precious metals sector is very bullish for the following years, it’s very bearish for the following weeks.

Summary

To summarize, the outlook for the precious metals sector remains extremely bearish for the next few months. Since it seems that the PMs are starting another short-term move lower more than it seems that they are continuing their bigger decline, I think that junior miners would be likely to (at least initially) decline more than silver.

From the medium-term point of view, the key two long-term factors remain the analogy to 2013 in gold and the broad head and shoulders pattern in the HUI Index. They both suggest much lower prices ahead.

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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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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