Powell’s recent dovish remarks starteda sugar high among investors. However, it seems like the hangover has alreadybegun.
TheGold Miners
While gold, silver and mining stocksjumped for joy following Fed Chairman Jerome Powell’s dovish remarks on Jul. 28,their sugar high ended on Jul. 30. And while I warned that FOMC press conferences often elicit short-term bursts of optimism, it was likelyanother case of ‘been there, done that.’
I wrote priorto the announcement:
Whilethe PMs may record a short-term bounce – which often occurs following Powell’spressers – lower lows are still likely to materialize in the coming months.
In both cases, the forecastfor silver, gold, and mining stocks is extremely bearish for the nextseveral months.
As further evidence, let’s compare thebehavior of the GDX ETF and the GDXJ ETF. Regarding the former, the seniorminers’ (GDX) RSI rose above 50 last week. However, the milestone preceded severalcorrective tops in 2020 and 2021. Thus, last week’s Fed-induced strength hasonly broadened the right shoulder of its bearish H&S pattern, and ifcompleted, the size of the head implies a drawdown to roughly $28.
Please see below:
Meanwhile, the GDXJ ETF invalidated thebreakdown below the neckline of its bearish H&S pattern last week. However,with the milestone likely a speed bump along the junior miners’ bearishjourney, a mosaic of indications signal that their medium-term outlook remainsquite somber. For context, with the junior miners’ RSI at 48.35, severalflirtations with 50 coincided with the short-term peaks in 2021 and werefollowed by material declines. I marked these cases with red ellipses. And yes,it was also the case during the final corrective pre-slide upswing in March2020.
The bottom line?
If gold repeats its June slide, it willdecline by about $150. Taking the entire decline into account (since August 2020),for every $1 that gold fell, on average, the GDX was down by about 4 cents(3.945 cents) and GDXJ was down by about 6.5 cents (6.504 cents).
Thismeans that if gold was to fall by about $150 and miners declined just asthey did in the past year (no special out- or underperformance), they would belikely to fall by $5.92 (GDX) and $9.76 (GDXJ). This would imply price moves to$27.76 (GDX) and $35.78 (GDXJ).
In conclusion, gold, silver, and miningstocks received a helping hand from the Fed last week, as the charitablecontribution uplifted the precious metals. However, while the central bankachieved its objective and talked down the U.S. dollar, prior bouts ofshort-term optimism faded once reality reemerged. As a result, with the USDIndex now in season and the 2012 analogue looking more prescient by the day,gold, silver, and mining stocks will likely suffer profound declines in thecoming months. However, with their long-term fundamentals still extremelybullish, new highs will likely dominate the headlines in the coming years.
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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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