Gold Juniors Decline While Senior Miners Rally - What Gives? / Commodities / Gold & Silver 2019

Doyou know what mining companies did yesterday? They verified a major breakdown,confirming the extremely bearish outlook for the following months. What? Theminers rallied? Oh, you mean the senior mining stocks (HUI, GDX…) – then yes,they moved a bit higher. But the junior miners (TorontoStock Exchange Venture Index) just declined after confirmingbreakdown below the very important rising support line, which has profoundimplications for the next months. Truth be told, what’s happening in the seniorminers can be used to indicate the next short-term moves as well, but we’ll starttoday’s analysis with the big picture.

TheMining Index That Is Breaking Down

OnOctober 25, we wrote the following about juniors’ outlook:

What'sgoing on in this proxy for juniorminers?

It'sdeclining - that's what's happening. In particular, it declined below therising medium-term support line that's based on two profound and clear bottoms:the 2016 and 2018 lows. And it's not something that happened just yesterday. Ithappened about 3 weeks ago and unless the TSX Venture Index rallies today, thisweek's close will mark the third consecutive weekly close below this line.That's important, because this means that the breakdown - even though it's tiny- was just confirmed. And confirmed breakdowns are likely to be followed byfurther declines.

Now,the more significant the support that was broken, the bigger decline one canexpect, and the line that was just broken is definitely significant.

Thismeans that the confirmed breakdown in the TSX Venture sends a huge warning tothe gold, silver, and mining stock bulls. It's not an immediate-term or even ashort-term sign (we have plenty of them coming from other places), but it is apowerful sign pointing to sector-wide decline in the following months. We havebeen warned by yet another market. Those who refuse to listen will have to facethe costly consequences.

Thedecline’s continuation means that everything that we wrote above is more thanup-to-date. It was just confirmed by juniors’ price action. If the breakdownwas not a big deal, the junior miners could have rallied, just like the seniorminers did. But that’s not what happened. The previously broken support has nowturned into resistance, and it makes the possible short-term upside verylimited. The downside, however, is huge.

Thenearest strong support is the 2018 low, but we doubt that it will hold, giventhat the recent breakdown took place so close to it. The price had alreadytaken a breather and it’s ready to slide further. This means that the nextlikely target is the early-2016 bottom. That’s far from the current price, so the move islikely to significant. And, since the medium-term moves are more or lessaligned between the major parts of the precious metals sector and the TorontoStock Exchange Venture Index, it seems that gold, silver, and senior miningstocks have much further to drop in the following months too.

Speakingof senior mining stocks, let’s see how they performed compared to the price ofgold and compared to otherstocks.

Examinationof Senior Miners

TheHUI to gold ratio is a good way to measure gold stocks’ relative performance togold. And this ratio is once again in the decline mode after a rather sharpcounter-trend move. Why was the recent upswing a counter-trend move and not thestart of a beginning of a new trend? Because the attempt to break above thedeclining resistance line failed miserably. The current small move lower in theratio is the very early part of the price move right after the breakout wasinvalidated.

Invalidationsare strong bearish signs in general. The line that was broken was based on twomajor (2011 and 2016) tops, therefore it’s important – and so is theinvalidation of the breakdown above it. Focusing on what one saw in theprevious several days is tempting, especially for beginninggold traders,but keeping the context in mind is absolutely critical if one wants to makeserious gains in this – or, in fact, any other – market.

Moreover,let’s remember that the 2019 top in the ratio made the RSI indicator move above70 and there were only two similar cases in the past 15 years. That was thelate-2012 top and the 2016 top. Both were followed by substantial declinesin the ratio, in gold stocks, and in gold itself. The implications here are clearly bearish for the following months and weeks. The above chartdoesn’t signalanything for gold in the next several days, though. Given howrich this week is in terms of news, things could get quitevolatile, especially given the looming reversal turning point, but we’ll get tothat in the following text.

Today'sarticle is a small sample of what our subscribers enjoy regularly. They knowabout both the market changes and our trading position changes exactly whenthey happen. Apart from the gold-USD Index implications, we've also shared withthem which side of the argument Dr. Copper (the metal with PhD. in economics) isat. We encourage you to sign up for our daily newsletter, too - it's free andif you don't like it, you can unsubscribe with just 2 clicks. If you sign uptoday, you'll also get 7 days of free access to our premium daily Gold &Silver Trading Alerts to get a taste of all our care. Sign up for the free newslettertoday!

Thank you.
PrzemyslawRadomski, CFA
Editor-in-chief,Gold & Silver Fund Manager
Sunshine Profits - Effective Investments through Diligence and Care

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