Will the next move in the gold market be downside?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Gold moved slightly higher, silver soared, but miners declined on Friday. If it’s not a screaming short-term signal, I don’t know what is.
In other words, Friday’s session served as a perfectly bearish confirmation of what we’ve been writing throughout the previous week.
Let’s take a look at what happened in the markets. The below 4-hour candlestick chart features junior gold (and silver) miners, gold, and silver, through their proxies: GDXJ, GLD, and SLV ETFs.
I’m using the ETFs for all those markets so that the opening and closing hours of each candlestick are identical and can thus be really comparable.
The key thing that you can see above is that the way in which those three parts of the precious metals market behaved on Friday differed considerably.
While gold was more or less neutral, silver moved much higher, while gold miners moved… Visibly lower. In particular, it was the final few hours of Friday’s session (last candlestick) that made the difference.
If used horizontally, green lines make it easier to compare the most recent performance to the early-December high. And:
- The GLD ended the previous week very close to that high.
- The SLV ended the week above that high.
- The GDXJ ended the week well below that high.
This means that silver was just particularly strong relative to gold, and miners were just particularly weak relative to gold.
Gold miners tend to be early in a given move, while silver prices tend to lag / catch-up in the final parts of the move. That’s what we’ve been able to see on the precious metals market for many years. Naturally, there were exceptions, but the above rule still holds for the majority of the time, especially when it’s both silver-gold and miners-gold links that point to the same thing.
Now, the miners-gold link suggests that a new downtrend is starting, because miners were weak relative to gold to a big extent.
The performance of the silver price, on the other hand, suggests that the rally is coming to an end, as it is clearly playing catch-up.
In fact, that’s what we also see in today’s pre-market trading (chart courtesy of https://silverpriceforecast.com).
Silver corrected much more of the recent immediate-term decline than gold did, which confirms the indications from Friday’s session.
Taking the above together points to a situation in which we are seeing a top in the precious metals market.
No surprise, the precious metals sector has recently been very strongly negatively correlated with the USD Index, which appears to have formed a major bottom.
The USD Index corrected back to its 2016 and 2020 highs, and it verified them as supports. The medium-term uptrend is now likely to resume.
And since both: gold, and the stock market have been correcting along with the USD Index (in the opposite direction, of course), as the correction in the USDX is over, it seems that the corrective downswings in gold and stocks are also ending.
All in all, it seems that the next big move in the precious metals market is going to be to the downside, and that it’s about to begin. In fact, in the case of the mining stocks, it seems to be already underway.