Many people wonder what the future of gold is in the face of military conflicts and central bank decisions. Here is an example of possible scenarios.

Q: Many thanks for your great service. Here are a couple of points I would like to offer to you for your thoughts:

1. There is talk of the US government (and this would lead other governments to follow) moving to a Central Bank Digital Currency (CBDC). This would potentially be the end of cryptos in the private sector. Crypto would be transferable at a given price and time for the CBDC. Like what FDR did with gold in 1933. After the conversion, cryptos would be banned. Would this occurrence or the rumor/threat of this action occurring push people back into the precious metals? How do you see this scenario playing out?

2. How do you think the precious metals will react to a long-drawn-out war in Ukraine/Europe (which could potentially morph into WW3 post-2026)?

3. How do you see the move of both Russia and China away from the SWIFT system affecting the precious metals? (China and Russia are accelerating their efforts to move to a new system in light of the recent Russian bans.)

A: Thank you. Here’s my take:

1. Well, as much as I don’t like to write it, I view the above scenario as likely. Cryptocurrencies pose a direct threat to the monetary system and the power that it grants to those that control it. Why wasn’t it banned, then? Because while it’s popular, it could get widespread adoption and then the monetary authorities could move to government cryptos that only they control.

Theoretically, there are many positives to a system where money is “intelligent” and “customizable”. For example, money that is provided as social support might be used for most products, but not for alcohol or other similar substances. Supporting a specific area could be made easy. Simply put, money spent there would be worth 30% more than elsewhere, so people would rush in to take advantage of the opportunity, thus supporting the area that they were supposed to support. For example, in the case of natural disasters, it would help the area recover.

However, there are also myriads of things that can go wrong in this system. You didn’t like my party’s narrative before the elections? Swooosh!, goes the magical monetary wand – and your money is now worth only 70% of what it was worth previously. “Hey, my company’s money should be worth more, because we’re so cool, and besides, look, here’s a bribe.”

Would you rather own this smart money or dumb old gold and silver that nobody can change? I’d personally go with both, but it would be more important to me than previously to have a bigger portion of my assets in physical gold and silver than before. Just in case someone with monetary power doesn’t like what I do, write, or think. Remember that those in power can change, so even by being a completely law-abiding citizen, who knows what the next government would think of that…

So, I think that ultimately it will make prices of precious metals move higher, but, of course, this is something that I see happening in the coming years, not in the next few weeks.

Who knows, maybe the global rise in interest rates (which is just starting) is supposed to make people dislike the current monetary system so that they not only are OK with the new crypto system, but they request it. Remember people shouting “Lock us down! Lock us down!” at the beginning of the pandemic?

2. Moving into a WW3 would like make the precious metals sector (especially gold) soar. However, I think that a stock-market-slide-led decline awaits us first – in the following weeks/months.

3. My reply here is exactly the same as when I replied to the question about Russia’s ban from the SWIFT system yesterday. Namely: This could work as you wrote above, but… history tells us that this would likely not be the case initially. Remember 2008? We had an international banking crisis (this doesn’t fully express what it was, but serves as a good summary), so the contagion effect was in full force, and what did gold do? It first declined significantly, along with the general stock market, and then came back up with a vengeance. While gold was declining, silver and mining stocks were also declining, particularly significantly. That’s in perfect tune with what I’m expecting to see in the future of the precious metals market.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

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Przemyslaw Radomski, CFA
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Mining stocks would likely suffer when the general stock market slides, and it seems that we won’t have to wait too long for that.

World stocks have already begun their decline, and based on the analogy to the previous invalidations, the decline is not likely to be small. In fact, it’s likely to be huge.

For context, I explained the ominous implications on Nov. 30. I wrote:

Something truly epic is happening in this chart. Namely, world stocks tried to soar above their 2007 high, they managed to do so and… they failed to hold the ground. Despite a few attempts, the breakout was invalidated. Given that there were a few attempts and that the previous high was the all-time high (so it doesn’t get more important than that), the invalidation is a truly critical development.

It's a strong sell signal for the medium- and quite possibly for the long term.

From our – precious metals investors’ and traders’ – point of view, this is also of critical importance. All previous important invalidations of breakouts in world stocks were followed by massive declines in the mining stocks (represented by the XAU Index).

Two of the four similar cases are the 2008 and 2020 declines. In all cases, the declines were huge, and the only reason why they appear “moderate” in the lower part of the above chart is that it has a “linear” and not “logarithmic” scale. You probably still remember how significant and painful (if you were long that is) the decline at the beginning of 2020 was. 

Now, all those invalidations triggered big declines in the mining stocks, and we have “the mother of all stock market invalidations” at the moment, so the implications are not only bearish, but extremely bearish.

What does it mean? It means that it is time when being out of the short position in mining stocks to get a few extra dollars from immediate-term trades might be risky. The possibility that the omicron variant of Covid makes vaccination ineffective is too big to be ignored as well. If that happens, we might see 2020 all over again – to some extent. In this environment, it looks like the situation is “pennies to the upside and dollars to the downside” for mining stocks. Perhaps tens of dollars to the downside… You have been warned.

Here's how the situation currently looks from the U.S. point of view. The chart below features the S&P 500 futures.

The key thing about the above chart is that what we’ve seen this year is the biggest decline since 2020, and the size of the recent slide is comparable to what we saw as the initial wave down in 2020. If these moves are analogous, the current rebound is normal – there was one in early 2020 too. This also means that a much bigger decline is likely in the cards in the coming weeks.

The thing that we see with regard to the short term is that stocks moved above their declining resistance line. However, this line was already “broken” in a similar way earlier this year. The fact is that this “breakout” actually resulted in its invalidation and another wave down.

If history is about to rhyme with regard to both short-term and the analogy to 2020, the next move lower might be much bigger.

This would be likely to have a very negative impact on the precious metals market, in particular on junior mining stocks (initially) and silver (a bit later).

Thank you for reading our free analysis today. Please note that the above is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

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Przemyslaw Radomski, CFA
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As history shows, gold and silver rallies based on geopolitical tensions are often short-lived. Yesterday, a hint of a trend reversal appeared.

Don’t stop reading this mining stock analysis until you get to the part about junior mining stocks’ analogy. Something might interest you there.

While the unfortunate conflict confronting Russia and Ukraine has intensified in recent days, gold, silver, and mining stocks have benefited from the crisis. However, since history shows that geopolitical-tension-based rallies often reverse, Feb. 24 was likely a small indication of what should unfold over the next few months.

For example, gold’s sharp rally turned into a sharp intraday reversal on Feb. 24. While the S&P 500, the NASDAQ Composite, the S&P 500, and gold managed to end the session in the green, the GDX ETF declined by 1.93%.

Furthermore, after the gold and silver senior miners rallied above their medium-term declining resistance line (the downward sloping black line in the middle of the chart below), the intraday reversal invalidated the breakout and it occurred on significant volume.

At the same time, senior mining 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-term downtrend remains intact, and that the short-term concern-based rally may have just ended.

To that point, the HUI Index provides clues from a longer-term perspective. When we analyze the weekly chart, the current short-term move higher is in tune with the previous patterns, but history is not repeating itself to the letter.

The three previous cases that I marked with green were not identical, but quite similar in terms as they were all some sort of a broad head-and-shoulders pattern.

Now, this pattern can have more than two “shoulders”. It’s not that common, but it happens. It seems that what we saw recently (I mean the late-2021 – Feb. 2022 rally) could be viewed as either a part of a big post-pattern consolidation, or another right shoulder of the pattern.

Based on how broad the pattern is and self-similarity present in gold, it seems that the analogy to what happened in 2012 is most important right now.

Looking at the moving averages, we see that the 50-week moving average (blue) and 200-week moving average (red) performed quite specifically in late 2012, and we see the same thing this year.

The distance between 50- and 200-week moving averages currently narrows, while the former declines. Back in 2012, the top formed when the HUI rallied above its 50-week moving average, which just happened once again.

Still, if the general stock market slides, and that appears likely for the following weeks and months, then we might have a decline that’s actually similar to what happened in 2008. Back then, gold stocks declined profoundly, and they have done so very quickly.

The dashed lines that start from the recent prices are copy-paste versions of the previous declines that started from the final medium-term tops. If the decline is as sharp and as big as what we saw in 2008, gold stocks would be likely to decline sharply, slightly below their 2016 low. If the decline is more moderate, then they could decline “only” to 120 - 140 or so. Either way, the implications are very, very, very bearish for the following weeks.

Turning to the junior miners, the GDXJ ETF tried to break out above a lower declining resistance line (the downward-sloping blue line drawn from the mid-2021 and late-2021 highs below). However, the attempt was rejected and culminated with a sharp intraday reversal. Moreover, the junior miners’ relative weakness was on full display, as despite the green lights flashing for the general stock market, gold, and silver, the GDXJ ETF ended the Feb. 24 session down by 2.28%.

In addition, please note that the bearish about-face occurred on strong volume, and the move mirrored the sharp spike that preceded the March 2020 plunge.

Please note that while junior miners invalidated their breakout above the declining resistance line, similarly to GDX, it was not the analogous line. The line that’s analogous to the one on the previous GDX chart is the blue, dashed line. GDXJ was not even close to it.

In other words, junior miners are underperforming 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), junior miners are likely to decline more than seniors, providing a greater shorting opportunity for truly epic profits.

Let’s get back to the previous chart for a moment, and let’s expand on the “just like in 2020” analogy.

Buckle-up, Alice, because the ride down the similarity rabbit hole is going to be a wild one.

Here it goes:

• The early-2020 top in the GDXJ formed after a sharp short-term rally.
• The early-2020 top in the GDXJ formed when GDXJ opened much higher, declined on an intraday basis, and ended the day lower.
• The early-2020 top in the GDXJ formed at $44.85, on significant volume.
• When the GDXJ topped in early-2020, its 50-day moving average was at about $40, and the MACD indicator was at about 1.

Now, let’s consider what happened yesterday.

• This week’s top in the GDXJ formed after a sharp short-term rally.
• This week’s top in the GDXJ formed when GDXJ opened much higher, but declined on the intraday basis, and ended the day lower.
• This week’s top in the GDXJ formed 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 at about 1 (0.747).

If you think that’s extremely similar, you’re right. However, I saved the best for last:

The early-2020 top formed on February 24.

Yesterday WAS February 24.

Does this guarantee a slide like in 2020 in the junior miners? Of course not, there are no guarantees in any market, but does that make it even more likely? Yes, it does. Is it an epic opportunity for those who position themselves correctly? Again, I can’t make any promises or guarantees, but that’s what seems likely to me.

All in all, a crash below $20 is not out of the question. In the meantime, though, I expect the GDXJ ETF to challenge the $32 to $34 range. However, this is my expectation for a short-term bottom only. While the GDXJ ETF may record a corrective upswing at this level, the downtrend should continue thereafter, and the junior miners should fall further over the medium term.

In conclusion, the unfortunate situation unfolding in Ukraine is important, from a humanitarian perspective, and I hope that a peaceful resolution materializes. Also, it is my responsibility to analyze the situation and report it to you how it’s likely to impact the markets and what it implies for one’s trading positions. What’s justified from the risk-to-reward point of view and what’s not. While gold, silver, and mining stocks benefited from geopolitical tensions, history shows that such gains are short-lived. As a result, I still expect the trio to hit lower lows over the medium term, and I think that the decline will not be subtle.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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Gold and the USDX reacted vigorously to the worrisome news concerning Eastern Europe. However, only the latter can be calm about its medium-term future.

As geopolitical tensions uplift gold, silver, and mining stocks, they’re in rally mode each time a doom-and-gloom headline surfaces. However, while the ‘will they or won’t they’ saga commands investors’ attention, the USD Index continues to behave rationally. For example, while volatility has increased recently, the dollar basket has held firm.

To explain, I wrote on Feb. 17:

The USD Index is at its medium-term support line. All previous moves to / slightly below it were then followed by rallies, sometimes really big rallies, so we’re likely to see something like that once again.

Such a rally would be the prefect trigger for the triangle-vertex-based reversal in gold and the following slide.

Please see below:

Furthermore, the USD Index’s recent pullback was far from a surprise. For example, I highlighted on numerous occasions that the greenback is nearing its weekly rising resistance line, and the price action has unfolded as I expected.

Moreover, while overbought conditions resulted in a short-term breather, history shows that the USD Index eventually catches its second wind. To explain, I previously wrote:

I marked additional situations on the chart below with orange rectangles – these were the recent cases when the RSI based on the USD Index moved from very low levels to or above 70. In all three previous cases, there was some corrective downswing after the initial part of the decline, but once it was over – and the RSI declined somewhat – the big rally returned and the USD Index moved to new highs.

As a result, with the USD Index showcasing a reliable history of profound comebacks, higher highs should materialize over the medium term.

Please see below:

Just as the USD Index took a breather before its massive rally in 2014, it seems that we saw the same recently. This means that predicting higher gold prices (or those of silver) here is likely not a good idea.

Continuing the theme, the eye in the sky doesn’t lie, and with the USDX’s long-term breakout clearly visible, the wind remains at the dollar’s back. Furthermore, dollar bears often miss the forest through the trees: with the USD Index’s long-term breakout gaining steam, the implications of the chart below are profound. While very few analysts cite the material impact (when was the last time you saw the USDX chart starting in 1985 anywhere else?), the USD Index has been sending bullish signals for years.

Please see below:

The bottom line?

With my initial 2021 target of 94.5 already hit, the ~98-101 target is likely to be reached over the medium term (and perhaps quite soon). Mind, though: we’re not bullish on the greenback because of the U.S.’s absolute outperformance. It’s because the region is fundamentally outperforming the Eurozone. The EUR/USD accounts for nearly 58% of the movement of the USD Index, and the relative performance is what really matters.

In conclusion, the financial markets remain on Russia-Ukraine watch. While gold, silver, mining stocks, and the USD Index whipsaw on the news, the technical and fundamental backdrops support higher prices for the latter, not the former. Thus, while geopolitical tensions are always short-term bullish for the precious metals, the rush is often short-lived. As a result, the trios’ downtrends that began in late 2020 will likely resurface once the headline-driven market returns to normal.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

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Przemyslaw Radomski, CFA
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In line with bearish bets, miners have thrown a match. Gold, however, doesn’t want to leave the ring without a fight. How long will it stay high?

While gold remains relatively firm despite stock market turbulence, rising real yields, and bearish technical indicators, even a confluence of headwinds hasn’t been able to knock the yellow metal off its lofty perch. However, mining stocks haven’t been so lucky. With my short position in the GDXJ ETF offering a great risk-reward proposition, the junior gold miners’ underperformance has played out exactly as I expected.

Moreover, with major spikes in volume preceding predictable sell-offs (follow the vertical dashed lines below), I’ve warned on several occasions that the GDX ETF is prone to tipping its hand – we saw this volume spike in January, which was the 2022 top (as of today). In addition, with mining investors’ power drying up by the day, the medium-term looks equally unkind.

Please see below:

On Wednesday, gold miners fell. Even though they declined by just $0.06, it was profound. The miners were following gold higher during the early part of Wednesday’s (Feb. 9) session, but they lost strength close to the middle thereof and were back down before the closing bell.

If the gold price reversed and then declined during the day, that would have been normal. However, gold stayed up.

This tells us that the buying power has either dried up or is drying up.

When everyone who wanted to get into the market is already in it, the price can do only one thing (regardless of bullish factors) – fall. Those who are already in can then sell. Monitoring the markets for this kind of cross-sector performance is one of the more important gold trading tips.

Look, I’m not saying that declines now are “guaranteed”. There are no guarantees in the markets. There might be buyers that haven’t considered mining stocks that would now enter the market, but history tells us that this is unlikely. Instead, declines are very likely to follow.

Yesterday’s big daily decline confirmed my above comments. Gold miners declined much more than gold did, and they did so at above-average volume. The latter indicates that “down” is the true direction in which the precious metals market is heading.

To that point, the HUI Index provides clues from a longer-term perspective. When we analyze the weekly chart, it highlights investors’ anxiety. For example, after hitting an intraweek high of roughly 260, the HUI Index ended the Feb. 10 session at roughly 250 – just 3.99 up from last Friday – that’s an intraweek reversal.

Furthermore, with the index still in a medium-term downtrend, shades of 2013 still profoundly bearish, and sharp declines often preceded by broad head and shoulders patterns (marked with green), there are several negatives confronting the HUI Index. As such, a sharp drawdown will likely materialize sooner rather than later.

Please see below:

Finally, the GDXJ ETF is the gift that keeps on giving. For example, with lower highs and lower lows being part of the junior miners’ roughly one-and-a-half-year journey, false breakouts have confused many investors. However, while I’ve been warning about the weakness for some time, more downside is likely on the horizon. To explain, I wrote on Feb. 10:

I emphasized before that juniors hadn’t moved above their 50-day moving average, and that they stayed below their rising blue resistance line. Consequently – I wrote – the downtrend in them remained clearly intact.

Yesterday’s reversal served as a perfect confirmation of the above. The previous breakdowns were verified in one of the most classic ways. The silver price has been quite strong recently, which is also something that we see close to the local tops.

The reversals in mining stocks, the situation in gold, outperformance of silver, AND the situation in the USD Index (the medium-term support held) together paint a very bearish picture for the precious metals market in the short and medium term.

All in all, if the weakness continues, I expect the GDXJ ETF to challenge the $32 to $34 range. However, please note that this is my expectation for a short-term bottom. While the GDXJ ETF may record a corrective upswing at this level, the downtrend should continue thereafter, and the junior miners should fall further over the medium term.

In conclusion, gold showcased its steady hand throughout the recent volatility. However, mining stocks have cracked under the pressure. With the latter’s underperformance often a bearish omen for the former, the yellow metal’s mettle may be tested over the medium term. As such, while the long-term outlooks for gold, silver, and mining stocks remain profoundly bullish, a final climax will likely unfold before their secular uptrends continue.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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