What Signals Do Gold, Silver, and Stocks Send to Investors? / Commodities / Gold and Silver 2022
While the statistics scream,investors, often blinded by emotions, do not hear them. However, since historyseems to rhyme, what do gold, silver, and mining stocks have in store for us?
What a boring month!
At least for those who monitor theperformance of junior mining stocks. It’s Dec. 29, and the monthly price changefor the GDXJ ETF is $0.15 (0.41%). That’s how much higher the GDXJ is now than it was at the end of November.That’s next to nothing – almost a “statistical error.”
So far today, gold and silver are notdoing much (chart courtesy of https://SilverPriceForecast.com), but goldfutures rose by $55.90 (3.18%) andsilver prices rose by $2.06 (9.45%) in December.
I know that I’ve been writing about thisover and over again, but please note how extreme this signal is! It’scrystal-clear even on a monthly basis. The signal, of course, comes frommarkets’ relative performance.
WhatReally Happened
Miners tend to underperform the gold price close to market tops, and silver tends to outperform close to market tops. Theabove monthly numbers are practically screaming: “it’s a top!.” As always, veryfew are listening, as it’s easy to get carried away by the primary emotionthat’s out there in the market, and when prices are rallying, people becomebullish. They tend to ignore the signs and focus on the feelings.
Even the wording in the messages that wereceive changes. The phrases “I feel the market is about to move higher” or “it seems to me that this rally won’t end” are common, but messages with indications andevidence supporting that bullish case are very rare or (usually) absent.
Please note that while I’ve been analyzing the precious metals sector’s outlook recently, my trading focus has been on thejunior mining stocks – and indeed, miners have barely moved higher this month, even despite a sizable move lowerin the USD Index.
Butyou said that miners are driven by stocks, and theS&P 500 is down byover 7% this month. Aren’t miners weak just because of the stocks? As aresult, there is no underperformance of gold—no bearish indication? No.
While it’s true that stocks’ performancetends to impact juniors’ prices, it’s also true – to a considerable extent – inthe case of the silver market.
Silver’s price hasn’t been weak thismonth. Quite the opposite – silver soared by almost 10%.
If silver soared so much, then apparentlythe impact the stock market had on the precious metals sector was not assignificant. Consequently, it’s verylikely that the indications coming from the relative performance ofminers and silver aretruly bearish for the precious metals sector.
What most people might have missedrecently is that what we’ve seen in the past couple of weeks is very similar towhat we already saw in mid-2021.
I copied the mid-2021 topping pattern tothe current situation. I marked the period from the first intraday high to thestart of the decline, and I marked it from the intraday high to the intradaylow of the pattern.
Those are surprisingly identical, don’tyou think?
Interestingly, both patterns werepreceded by similarly sharp rallies, which were preceded by a broad bottom,which in turn were preceded by a decline of about $2,000.
Historyappears to be rhyming once again, and the implications are bearish – also inthe short run.
Also, did I mention that the volume wasdeclining during both patterns? I marked that in the bottom part of the abovechart.
Silver’s strong performance is notable atthis time, but please note that we saw the same thing during the mid-2021 top.
And junior miners?
Back in mid-2021, they corrected a bitmore than half of their previous decline, and right now they have corrected abit less than half of their previous decline. The correction is nonethelesssimilar.
A2021 Repeat?
Interestingly, after the correction wasover, the pace of the decline picked up, and junior miners moved to new lows,even though gold and silver moved approximately to their previous lows.
Thepace of decline that followed the mid-2021 top was almost twice as big as theone of the preceding (2020 – early-2021) decline. As history rhymes, we’re likely to see something similar in the followingmonths (and probably weeks) as well.
If that wasn’t enough, the link betweenmid-2021 and today is very clear in the case of the USD Index as well. Sincethe USDX is one of the key drivers for the price of gold, it’s worth payingattention to it.
The RSI is after a lengthy consolidationright above the 30 level, and the USD Index is after a short-term breakout,which has been more than confirmed.
From a long-term point of view, thebreakout above the 2016 and 2020 highs in the USDX has been fully verified.
All this means that the USD Index islikely to move higher, which, in turn, is likely to trigger declines in the preciousmetals sector. The relative performance of gold, silver, and mining stocksindicates that the precious metals sector just can’t wait for a good reason tostart its next huge move lower. It looks like they’re about to get it.
Naturally, the above is up-to-date at themoment when it was written. When the outlook changes, I’ll provide an update.If you’d like to read it as well as other exclusive gold and silver priceanalyses, I encourage you to sign up for our freegold newsletter.
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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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.
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