Gold Stocks Break to New Yearly Lows! / Commodities / Gold and Silver Stocks 2021
Ladies and gentlemen, we have abreakdown! Gold stocks underperformed the yellow metal so much that theyreached the lowest levels seen this year…
The HUI Index (goldstocks) broke to new 2021 lows while the USD Index broke to new 2021 highs.Just as I’ve been warning you.
Mining stocks’ extremeweakness relative to gold continued yesterday, and while it may seem likethe weakness has to have a limit, this limit is likely still quite far from themarkets right now.
Let’s take a look at the long-term HUIIndex chart for details.
Remember when I told you that the tinybuy signal from the stochastic indicator was unlikely to trigger anything morethan a brief pause? That was based on the analogy to what happened in late 2012when miners paused, and then the decline simply continued. Well, gold stocksdid exactly that and gold stocks declined once again. Right now, they are rightafter the breakdown to new yearly lows, and this has profound implications inlight of the analogy to the 2012 – 2013 decline.
You see, when the HUIIndex declined below the previous lows back in 2013, it meant that thebiggest part of the slide was underway. The profit potential was still there,as it was still the first half of the biggest decline, but it meant thatwaiting for another big rebound in order to add to one’s short positions wasnot a good idea.
To clarify, there were two short-termconsolidations soon after the breakdown in 2013. One of them took the HUI about4% higher (in February 2013) and then we saw a decline. Afterwards, about 7%-8%correction (in March 2013) followed and then the biggest part of the declinetook place.
Consequently, we might see aconsolidation in gold stocks quite soon, but I wouldn’t expect it to beanything to write home about. At the current price levels, 4% – 8% means adecline of about 9 – 19 index. In the case of the GDXJ (if it moved in tunewith the HUI), it would imply a move up by $1.5 - $3.
Of course, this is a hypotheticaldiscussion of what might happen when gold stocks correct, but it doesn’t imply that they are likely to correct now. Actually, the opposite seemslikely because of the HUI’s breakdown and the USD’s breakout. Again, forecastinggold stocks at higher levels in the near term might be a dangerous thing todo.
So, to clarify, the above-mentionedcorrective upswing is likely to take place after another short-term move lower.If the GDXJ bottoms at about $35, then seeing it correct to about $36.5 - $38will be quite normal.
As far as the short-term price moves inthe mining stocks are concerned, my previous comments remain up-to-date.Yesterday, I wrote the following about the GDX ETF:
Whathappened? Senior gold miners finally broke decisively below the neck level of their head-and-shouldersformation, while juniors’ freefall continued.
Yesterday, senior miners closed below theneck level of the pattern for the second day, which means that the breakdown isalmost confirmed.
The GDX has encountered strong supportprovided by the previous 2021 lows, but it doesn’t mean that we have to see arebound here. Why? Because other proxies for mining stocks are already afterthe breakdown. This is the case with the GDXJ ETF, the HUI Index, and also theXAU Index. Even silver stocks – the SIL ETF –closed below the previous 2021lows for the second day in a row.
So, did mining stocks encounter strongsupport here? Not really, only one of the proxies did – the GDX ETF. Theremaining ones are already after a breakdown to new 2021 lows, and if we get aweekly close below them as well, the breakdown will be confirmed.
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Thank you.
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Toolsfor Effective Gold & Silver Investments - SunshineProfits.com
Tools für EffektivesGold- und Silber-Investment - SunshineProfits.DE
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