Gold: What Should We Expect Given the Ongoing Ukraine Conflict? / Commodities / Gold and Silver 2022
As history shows, gold and silverrallies based on geopolitical tensions are often short-lived. Yesterday, a hintof a trend reversal appeared.
Don’t stop reading this mining stockanalysis until you get to the part about junior mining stocks’ analogy.Something might interest you there.
While the unfortunate conflictconfronting Russia and Ukraine has intensified in recent days, gold, silver,and mining stocks have benefited from the crisis. However, since history showsthat geopolitical-tension-basedrallies often reverse, Feb. 24 was likely a small indication of whatshould unfold over the next few months.
For example, gold’s sharp rally turnedinto a sharp intraday reversal on Feb. 24. While the S&P 500, the NASDAQComposite, the S&P500, and gold managed to end the session in the green, the GDX ETFdeclined by 1.93%.
Furthermore, after the gold and silver senior miners rallied above their medium-term declining resistance line (thedownward sloping black line in the middle of the chart below), the intraday reversal invalidated thebreakout and it occurred on significant volume.
At the same time, seniormining stocks invalidated their attempt to break above their 38.2%Fibonacci retracement. That’s yet another bearish sign.
This means that the GDX ETF’s medium-termdowntrend remains intact, and that the short-term concern-based rally may havejust ended.
To that point, the HUI Index provides clues from a longer-term perspective. When we analyze the weekly chart, the currentshort-term move higher is in tune with the previous patterns, but history isnot repeating itself to the letter.
Thethree previous cases that I marked with green were not identical, but quitesimilar in terms as they were all some sort of a broad head-and-shoulderspattern.
Now,this pattern can have more than two “shoulders”. It’s not that common, but ithappens. It seems that what we saw recently (I mean the late-2021 – Feb. 2022rally) could be viewed as either a part of a big post-pattern consolidation, oranother right shoulder of the pattern.
Basedon how broad the pattern is and self-similarity present in gold, it seems thatthe analogy to what happened in 2012 is most important right now.
Lookingat the moving averages, we see that the 50-week moving average (blue) and200-week moving average (red) performed quite specifically in late 2012, and wesee the same thing this year.
Thedistance between 50- and 200-week moving averages currently narrows, while theformer declines. Back in 2012, the top formed whenthe HUI rallied above its 50-week moving average, which just happened onceagain.
Still,if the general stock market slides, and that appears likely for the followingweeks and months, then we might have a decline that’s actually similar to whathappened in 2008. Back then, gold stocks declined profoundly, and they havedone so very quickly.
Thedashed lines that start from the recent prices are copy-paste versions of theprevious declines that started from the final medium-term tops. If the decline isas sharp and as big as what we saw in 2008, gold stocks would be likely todecline sharply, slightly below their 2016 low. If the decline is moremoderate, then they could decline “only” to 120 - 140 or so. Either way, theimplications are very, very, very bearish for the following weeks.
Turning to the junior miners, the GDXJETF tried to break out above a lower declining resistance line (thedownward-sloping blue line drawn from the mid-2021 and late-2021 highs below).However, the attempt was rejected and culminated with a sharp intradayreversal. Moreover, the junior miners’ relative weakness was on full display,as despite the green lights flashing for the general stock market, gold, andsilver, the GDXJ ETF ended the Feb. 24 session down by 2.28%.
In addition, please note that the bearishabout-face occurred on strong volume, and the move mirrored the sharp spikethat preceded the March 2020 plunge.
Please note that while junior minersinvalidated their breakout above the declining resistance line, similarly toGDX, it was not the analogous line. The line that’s analogous to the one on theprevious GDX chart is the blue, dashed line. GDXJ was not even close to it.
In other words, junior miners areunderperforming seniors, just like what I’ve been expecting to see for months. The trend in the ratio between them is clear too.
Once again (just like in 2020), juniorminers are likely to decline more than seniors, providing a greater shortingopportunity for truly epic profits.
Let’s get back to the previous chart fora moment, and let’s expand on the “just like in 2020” analogy.
Buckle-up, Alice, because the ride downthe similarity rabbit hole is going to be a wild one.
Here it goes:The early-2020 top in the GDXJformed after a sharp short-term rally.The early-2020 top in the GDXJformed when GDXJ opened much higher, declined on an intraday basis, and endedthe day lower.The early-2020 top in the GDXJformed at $44.85, on significant volume.When the GDXJ topped inearly-2020, its 50-day moving average was at about $40, and the MACD indicatorwas at about 1.
Now, let’s consider what happenedyesterday.
This week’s top in the GDXJformed after a sharp short-term rally.This week’s top in the GDXJformed when GDXJ opened much higher, but declined on the intraday basis, andended the day lower.This week’s top in the GDXJformed at $45.16 (just 0.7% higher than in early-2020), on significant volume.When the GDXJ topped this week,its 50-day moving average was at about $40 ($40.50), the MACD indicator was atabout 1 (0.747).If you think that’s extremely similar,you’re right. However, I saved the best for last:
Theearly-2020 top formed on February 24.
YesterdayWAS February 24.
Does this guarantee a slide like in 2020in the junior miners? Of course not, there are no guarantees in any market, butdoes that make it even more likely? Yes, it does. Is it an epic opportunity forthose who position themselves correctly? Again, I can’t make any promises orguarantees, but that’s what seems likely to me.
All in all, a crash below $20 is not outof the question. In the meantime,though, I expect the GDXJ ETF tochallenge the $32 to $34 range. However, this is my expectation for ashort-term bottom only. While the GDXJ ETF may record a corrective upswing atthis level, the downtrend should continue thereafter, and the junior minersshould fall further over the medium term.
Thank you for reading our free analysistoday. Please note that the above is just a small fraction of today’sall-encompassing Gold & Silver Trading Alert. The latter includes multiplepremium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’dlike to read those premium details, we have good news for you. As soon as yousign up for our free gold newsletter, you’ll get a free 7-day no-obligationtrial access to our premium Gold & Silver Trading Alerts. It’s really free– sign up today.
Thank you.
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Toolsfor Effective Gold & Silver Investments - SunshineProfits.com
Tools für EffektivesGold- und Silber-Investment - SunshineProfits.DE
* * * * *
About Sunshine Profits
SunshineProfits enables anyone to forecast market changes with a level of accuracy thatwas once only available to closed-door institutions. It provides free trialaccess to its best investment tools (including lists of best gold stocks and best silver stocks),proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.
Disclaimer
All essays, research and information found aboverepresent analyses and opinions of Przemyslaw Radomski, CFA and SunshineProfits' associates only. As such, it may prove wrong and be a subject tochange without notice. Opinions and analyses were based on data available toauthors of respective essays at the time of writing. Although the informationprovided above is based on careful research and sources that are believed to beaccurate, Przemyslaw Radomski, CFA and his associates do not guarantee theaccuracy or thoroughness of the data or information reported. The opinionspublished above are neither an offer nor a recommendation to purchase or sell anysecurities. Mr. Radomski is not a Registered Securities Advisor. By readingPrzemyslaw Radomski's, CFA reports you fully agree that he will not be heldresponsible or liable for any decisions you make regarding any informationprovided in these reports. Investing, trading and speculation in any financialmarkets may involve high risk of loss. Przemyslaw Radomski, CFA, SunshineProfits' employees and affiliates as well as members of their families may havea short or long position in any securities, including those mentioned in any ofthe reports or essays, and may make additional purchases and/or sales of thosesecurities without notice.
Przemyslaw Radomski Archive |
© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.