Make Kitco Your Homepage

Gold Price, USDX, and stocks: the winds blow but the mountains stand strong

Commentaries & Views

No market moves up or down in a straight line, and there are pullbacks, pauses, and corrections. See, one doesn't invalidate the trend.

At least not without a serious signal and its confirmation. Preferably from many related markets. On Monday (Jul. 24), I wrote about the critical nature of the reversals that we saw across the board in weekly terms, and yesterday, I added a special note about the situation in the stock market. Namely, I wrote that since the 2022 decline started with a very brief move above the previous intraday high of the weekly reversal, it's not a game-changer to see something like that this time.

That's exactly what we saw yesterday!

Stocks Reverse Once Again

The current weekly candlestick might appear more bullish than the early-2022 one because it's white and points to a rally. BUT let's not forget that the week is not over. In fact, the above chart is based on only two sessions out of five. Consequently, quite a lot can change, and at the moment, the similarity appears to be intact. So far, the S&P 500 futures are down slightly in today's pre-market trading, which is also in tune with the above.

Moreover, do you know what's even more bearish and reversal-ly than a weekly reversal?

Seeing a daily reversal on top of it! And that's exactly what we saw yesterday!

The S&P 500 Index rallied and then moved back down yesterday, forming a daily shooting star candlestick. All this while the RSI is above 70, indicating overbought conditions and vulnerability for a sell-off.

This is bearish, and so are the implications for the precious metals sector, especially for junior mining stocks.

Meanwhile, the USD Index hasn't done anything special – it moved back and forth yesterday, and the short-term uptrend remains intact.

The key event of the recent past is still USDX's breakdown to new yearly lows and the subsequent invalidation of that breakdown.

The USDX is slightly down in today's pre-market trading while gold and silver are slightly up, but that's rather normal – every price move has breathers.

Precious Metals Take a Breather

From the weekly point of view, nothing really changed yet, so the situation is pretty much as it was after Friday's close. And the outlook after Friday's close was exceptionally bearish due to the weekly reversals.

The same is the case with the GDXJ. It just moved slightly higher, and that's very much in tune with what it did after the first post-disappointing-nonfarm-payroll-based tops.

If you focus on the tops that followed the horizontal red lines, you'll see that the initial decline was followed by a quick rebound – in particular, it was visible in April 2022.

So, just like what we saw in stocks – the current action is normal. It's part of a bigger bearish pattern.

I realize that it's boring to watch miners move back and forth the above and below the $38 level since late-May, but that's what markets do – they either shake people off or they bore them to the point when they quit, and it is then when the big (and most profitable) price moves tend to happen. The more patient one is, the ‘luckier' they tend to get.

One might be wondering if there's a specific price of gold, after which one would drop the bearish narrative. In reality, such an indication would likely not come from gold itself but most likely from mining stocks. If they were visibly stronger than gold, especially after forming a major bottom, that would be a good indication that the bullish narrative is to be adopted. That's simply not the case right now.

Do you know where GDXJ is? Approximately at its early-December 2022 high. And do you know where the gold price was at that time? About $150 lower. And S&P 500 was over 10% lower. So, yes, junior miners pretty much ignored both moves up. This is not the time to be focusing on giving up. This is the time to be focusing on taking advantage of the move lower that's very likely to come. And we likely won't have to wait too long, either.

What does it all mean? In short, the counter-trend corrective upswing is likely over, and that huge declines are likely just beginning. The huge profits that we recently reaped in the FCX recently are likely to be joined by massive profits from the current short positions.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.