After Recent Highs, What's Next for the Gold Junior Miners? / Commodities / Gold and Silver Stocks 2022
Signs are pointing to gold’s May rallyrunning out of steam as the USDX reaches its short-term bottom. But how muchstamina is left in the yellow metal?
Another day, another higher close in thejunior miners. And another day where profits on our long positions in thelatter increased. There is a sign that the rally in the precious metals sectoris close to being over.
That sign is the situation in the USD Index,and the shape of the gold-USDlink.
Starting with the gold-USD link, pleasenote that while gold ended yesterday’s session higher, it was only ~$6 higher.Given that the USD Index declined by over one index point, it would be “normal”for gold to rally much more.
That’s a sign that goldis getting “exhausted”, which is another way of saying that thebuying power for this particular rally appears to be drying up. Of course, oneswallow doesn’t make a summer, but given the size of USD’s decline, it’s quitenotable.
USD’s decline took it below its recentlows, and since it’s slightly down also in today’s pre-market trading, it seemsthat it can now decline further in the very near term. “Further” here shouldn’tbe viewed as “by a lot”. In fact, there is a combination of rising supportlines just above where the USD Index is trading right now.
The dashed lines: blue and red one arelikely to stop this correction. Of course, it’s not 100% certain, but thefundamental situation continues to favor higher USD values (risingreal interest rates), so significant changes don’t appear likely.The possibility is there, especially if the geopolitical situation changes, butit’s simply not likely.
Besides, the RSI just moved below 50, andwhile this doesn’t mean anything based on “classic” interpretation of thisindicator’s signals, I would like to emphasize that practically each time whenwe saw something like that in the past year or so, it meant that the USD Indexwas about to bottom.
So, on one hand, gold no longer “wants”to react to the USD’s weakness, and on the other hand, the short-term bottom inthe USD Index appears to be at hand.
Gold itself still didn’t correct as muchas it did after previous cases when the RSI touched the 30 level. I marked thesmallest rallies that followed this signal in the recent past with blue, dashedlines.
If history is about to rhyme, then gold’srally might be nearing its end, but it’s not yet there.
And what about the junior mining stocks?
Well, their rebound simply continues. TheGDXJ ETF ended yesterday’s session 0.92% higher (GDX was up by 0.59%, silverwas up by 0.23% and gold by 0.31%). They are up by almost $4 (about 10%) from May12, when we switched from short to long positions in the USDX – morethan any of the above-mentioned markets.
The USD’s decline appears to be close toits end, and the same goes for the end of the short-term rally in gold, whichmeans that the same fate likely awaits the junior miners – their rally too isabout to end, in my view.
The target area that I placed on theabove chart remains up-to-date. Yesterday’s weakness in gold relative to theUSD Index tells me that it’s more likelythat the rally will end in the lower part of the target area – probably closeto its early-May low.
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Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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