Will Stocks Lead the Way Lower for Gold Miners? / Commodities / Gold and Silver Stocks 2020

The precious metals market did almost nothingyesterday, and consequently we have relatively little to comment on today.There are two subtly bearish signs that we would like to feature, nonetheless.

The first subtly bearish sign is the change in theway the USD Index “topped” this month. In early April, and then in late April,the USDX reversed close to the 101 level and then moved lower in a decisiveway, until declining below 99. This time has already proved to be different.

In early May, the USDX reversed and declined a bit,but instead of continuing its decline in the following days as it used to do inApril, the US currency moved back up, and touched its previous highs. The shapeof the decline is clearly different, so perhaps the outcome will be differentas well. Perhaps instead of a move below 99, we’ll finally see a confirmedbreakout above 101.

Again, it’s a relatively subtle indication, butstill something that we noticed yesterday. Other factors that we discussed inthe previous days are more important.

The second small sign is the mining stocks’weakness. Even though gold, and the GLD ETF moved higher yesterday, the HUIIndex – proxy for gold stocks – was practically flat. The GDX ETF - anotherproxy for the miners - closed lower.

This would normally be an important sign – not asmall one – but yesterday’s weakness could be explained by a quite significantdaily decline in the main stock indices.

The daily slide in the S&P500 was likely to affect miners – and it did. Consequently, it’s nowonder that yesterday, miners disappointed relative to gold.

Still, let’s keep in mind that the stocks traded higher previously, and miners lagged, while silver leaped the gold price, sothe bearish implications of the relative performance analysis remain intact.It’s just that yesterday’s session was not as meaningful as the previous oneswere.

If stocks decline more and break below the 2850level, they will create a bearish head-and-shoulders top pattern, with thetarget slightly below 2700. We don’t think that this level would stop thedecline for long, but a decline – if it is to follow at all – has to start insome way. A move to 2700 or so based on the head-and-shoulderspattern seems a quite likely way for this move to start.

Let’s keepin mind that back in 2008 (and the current situation is still very similar to2008 due to the sudden nature of the crisis) the final slide in gold startedwhen the USD Index rallied decisively, breaking above the previous highs.

The USDIndex has been trading back and forth for several weeks now without ameaningful breakout whatsoever. Perhaps the confirmed breakout above the 101level will be what triggers the first part of what we think is going to be thefinal washout slide in the precious metals market.

All inall, gold’soutlook for the next few years is very bullish, but the outlook forthe next several weeks remains bearish.

Thank you for reading today’s free analysis. In thefull version of the analysis, we also feature our preferred way of takingadvantage of the current situation and the analogies to the previous pricemoves. If you’d like to read those premium details, we have good news. As soonas you sign up for our free gold newsletter, you’ll get 7-day access ofno-obligation trial of our premium Gold & Silver Trading Alerts. It’sreally free – sign up today.

Thank you.

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

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