Positions in the USDX are shifting from shorts to longs, so gold investors should look closely. Why? Because it’s an inverse relationship.

We’ve discussed the negative correlation between the dollar and the precious metals many times before, but it can never be discussed enough, particularly as the situation develops and the outlook for the USD Index becomes more positive.

Once the USD Index lands some knockout punches, the precious metals will be hurting, as they tend to do when the dollar rises. Gold, silver and the miners will eventually rise, but for the medium-term, they are still in bearish territory.

Counted out, counted down and rarely counted on, investors threw in the USD Index’s towel long before the fight even began. However, after shaking the cobwebs and landing a few haymakers, the greenback’s Rocky-like comeback is proof that ‘it ain’t over till it’s over.’

Let’s look at the factors influencing rise of the USD Index as well as some of the historical patterns:

1. Repositioning from Short to Long

Now, with thousands of screaming fans chanting “USD, USD,” the eye of the tiger could be eying another move higher. As evidence, if you analyze the chart below, you can see that non-commercial (speculative) traders have quietly repositioned from net-short to net-long.

To explain, notice how oversold periods in 2014 and 2018 – where net-speculative short interest as a percentage of total open interest was extremely high – preceded sharp rallies in the USD Index? Thus, with 2021 the most extreme on record, the forthcoming rally should be significant.

How significant? Well, let’s take a look at how things developed in the past – after all, history tends to rhyme.

Let’s focus on what happened when the net speculative positions were significantly (!) negative and then they became significantly (!) positive, so without paying attention to tiny moves (like the one that we saw last summer), let’s focus on the more meaningful ones (like the one that we see right now – the net positions just became visibly positive – over 16%, after being very negative for quite some time.

In short, that’s how the following profound rallies started:

• The big 2008 rally (over 16 index points)
• The big 2009 – 2010 rally (over 14 index points)
• The 2011 – 2012 rally (over 11 index points)
• The 2013 rally (“only” over 5 index points)
• The big 2014 – 2015 rally (over 20 index points)
• The 2018 rally (over 15 index points)

The current rally started at about 89, so if the “normal” (the above shows what is the normal course of action) happens, the USD Index is likely to rally to at least 94, but since the 5-index point rally seems to be the data outlier, it might be better to base the target on the remaining 5 cases. Consequently, one could expect the USD Index to rally by at least 11 – 20 index points, based on the net speculative positions alone. This means the upside target area of about 105 – 114.

Consequently, a comeback to the 2020 highs is not only very likely, but also the conservative scenario.

2. The 10-Year Treasury Yield

Adding to the momentum, in 2020, the USD Index sat out the U.S. 10-Year Treasury yield’s ferocious upswing. Defying historical precedent, a bottom and subsequent move higher in the U.S. 10-Year Treasury yield has coincided with a rise in the USD Index 80% of the time since 2003. But now in sync, 2021 has been a much different story. If you analyze the chart below, you can see that the USD Index has been moving in lockstep with the U.S. 10-Year Treasury yield since the New Year.

3. Reclaiming 200-Day Moving Average

In addition, not only has the USD Index broke above its previous highs, but the basket just reclaimed its 200-day moving average (which is often indicative of a long-term uptrend). As a result, the greenback continues to float like a butterfly and sting like a bee.

For historical context, after recapturing its 200-day MA in 2018, the USD Index only suffered mild pullbacks before surging above 95. As such, with the mid-2020 highs the USD Index’s next opponent, 94.5 is unlikely to put up much of a fight.

Keep in mind though: in the very-short term, the USD Index could move lower and retest its prior 2021 highs. However, the damage should be minimal, and it wouldn’t invalidate the USD Index’s medium-term breakout. Because of this, the outlook remains profoundly bearish for the gold, silver, and mining stocks over the medium term. If you analyze the table below, you can see that the precious metals tend to move inversely to the U.S. dollar.

4. The History Really Rhymes: The 2017-2018 Upswing

But saving the best for last, the 2017-2018 analogue could be the USD Index’s knockout punch. With this version likely to be titled “The Resurgence: Part 2,” while history often rhymes, it’s rare for it to rhyme with this level of specificity.

Please see below:

Even more revealing, while it took less than 118 days for the USD Index to move from peak to trough in 2020-2021, the uprising could occur at a much faster pace. In 2018, the USD Index’s breakout above its 50-day moving average is exactly what added gasoline to the USDX’s 2018 fire. And after the 2018 breakout, the USDX surged back to its previous high. Today, that level is 94.5.

Furthermore, in 2017-2018, it also took 82 days for the USDX to form a final bottom (the number of days between the initial bottom and the final bottom) and the duration amounts to 21.19% of the overall timeframe. If we applied a similar timeframe to today’s move, then the USD Index should have bottomed on Feb. 12. It actually bottomed (finally) on Feb. 25, which was just 8 trading days away from the former date. Taking into account the sizes of the moves that preceded the previous declines (they took approximately one year to complete), this is extremely close and an excellent confirmation that the self-similar pattern remains intact.

Also noteworthy, as the USDX approached its final bottom in 2017-2018, gold traded sideways. Today, however, gold has been in a downward spiral and it doesn’t seem that the decline is over. From a medium-term perspective, the yellow metal’s behavior is actually more bearish than it was in 2017-2018.

And while the self-similar pattern is already playing out as predicted, please read below for further explanation as to why the USD Index’s current and historical price action remains a spitting image:

It’s not true that there were no pullbacks during the 2018 rally. There were, but they were simply too small to be visible from the long-term point of view.

The first notable pullback took place in early May 2018, and it contributed to a corrective upswing in the precious metals market. To be precise, the USD Index declined after rallying for 56 trading days, but gold rallied earlier – 51 trading days after the USD Index’s final bottom. The USDX’s immediate-top formed 16 trading days after its final bottom, and gold’s bottom formed 10 trading days after the USD’s final bottom.

Comparing this to the size of the previous decline in terms of the trading days, it was:

• 51 – 56 trading days / 283 trading days = 18.02% - 19.79%
• 10 – 16 trading days / 283 trading days = 3.53% - 5.65%

Also indicating a messy divorce, when the USD Index turned a short-term decline into consolidation in mid-2018, can you guess what happened next? Well, the USD Index moved significantly higher, while gold moved significantly lower.

Please see below:

Moreover, when comparing the pairs’ behavior in mid-2018 to today, it’s ominously similar.

Please see below:

For additional context, I also wrote on Mar. 10:

Let’s examine the current situation: the preceding decline lasted for 200 trading days and there were 41 – 42 trading days between the final USDX bottom and the short-term reversals in gold and USDX. Comparing this to the final USDX bottom, we get 7 – 8 trading days.

Applying the previous percentages to the length of the most recent medium-term decline in the USD Index provides us with the following:

• 18.02% - 19.79% x 200 trading days = ~36 - ~40 trading days
• 3.53% - 5.65% x 200 trading days = ~7 - ~11 trading days

The above estimation of about 36 – 40 trading days almost perfectly fits the current 41 – 42-day delay, and the estimation of about 7 – 11 trading days almost perfectly fits the current delay of 7 – 8 trading days.

In other words, the analogy to the 2018 performance does not only remain intact – it actually perfectly confirms the validity of the current corrective upswing. Once again, it’s very likely just a pullback, not a big trend reversal.

Likewise, a potentially bearish pattern that I have been monitoring – where the USD Index’s price action from July to October 2020 mirrored the price action from December 2020 to February/March 2021– has officially been broken. With the USD Index’s medium-term breakout trumping the former, the potentially bearish pattern has been invalidated and the USD Index is likely to continue its ascension.

But to what end?

Well, if we look back at 2020, the USD Index attempted to recapture its previous highs. But lacking the upward momentum, the failure was followed by a sharp move lower. Today, however, the USD Index has broken above its previous highs and the greenback verified the breakout by consolidating, moving back toward the previous lows and rising once again. Now, the USD Index is visibly above its previous highs.

Taken together, and given the magnitude of the 2017-2018 upswing, ~94.5 is likely the USD Index’s first stop. And in the months to follow, the USDX will likely exceed 100 at some point over the medium or long term.

In conclusion, the USD Index went from being on the ropes to winning the crowd. And with the momentum building and the adrenaline rising, it’s only a matter of time before the USD Index lands another haymaker. Moreover, given the precious metals’ negative correlation with the U.S. dollar – combined with the fact that technicals, fundamentals and sentiment are now riding with the greenback – an uprising could leave the gold, silver, and mining stocks battered and bruised. However, after a tough period of soul searching, the precious metals will regain the heavyweight championship once again. Or, if one wants to put it in more technical terms, gold, silver, and miners are likely to start a massive rally, but only after declining visibly first.

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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Despite everyone saying the bottom is in, and that gold and miners are set for takeoff, the signs still point south. The real question: how low can they go?

Let’s take a look at some price targets for where the GDX and GDXJ mining ETFs might land up.

With the miners attempting to reclaim Pride Rock, it won’t be long until the GDX ETF is singing Hakuna Matata.

Rising U.S. Treasury yields? No problem.

A reinvigorated USD Index? Who cares.

But while strength is often viewed through the eyes of the beholder, the GDX ETF is far from being The Lion King. Sure, its bravery in the face of familiar foes is reason for optimism. However, we’ve seen this movie before. While the recent rally may resemble Mufasa, beneath the surface, the GDX ETF’s tepid price action looks a lot like Simba.

If you analyze the chart below, you can see that the GDX ETF moved to the upper level of my initial target range. However, with the Mar. 19 close eliciting a sell signal from the stochastic oscillator (the black and red lines at the bottom section of the chart), a historical reenactment (repeat of the early-2021 performance) could deliver another sharp move lower.

In addition, the shape of the early-January swoon is eerily similar to today’s price action. Case in point: back in January, the GDX ETF enjoyed a material daily rally, consolidated, then sunk like a stone. Because of that, the recent move higher and a few days of back-and-forth trading (consolidation) is nothing to write home about.

To explain, I wrote on Mar. 18:

Mining stocks followed gold higher, and they moved to the upper part of my previous target area, but not yet to its upper border. As you may recall, I mentioned the possibility of GDX moving to the $34 - $35 area and my original target for this rally was slightly below $34.

The GDX ETF now encountered the strongest combination of resistance areas, while the Stochastic indicator moved above the 80-level. Technically, the situation is now much more bearish in the GDX ETF chart than it was at the beginning of the year. Back in January, the GDX ETF was only at the declining blue resistance line.

Now, in addition to being very close to the above-mentioned line it’s also at:

• The neck level of the previously broken broad head and shoulders pattern
• The 50-day moving average
• The previous (late-February) highs.

Consequently, it’s highly likely that we’ve either just seen a top or one is close at hand.

But if we’re headed for a GDX ETF cliff, how far could we fall?

Well, while the S&P 500 is a key variable in the equation, there are three reasons why the GDX ETF might form an interim bottom at roughly ~$27.50 (assuming no big decline in the general stock market):

1. The GDX ETF previously bottomed at the 38.2% and 50.0% Fibonacci retracement levels. And with the 61.8% level next in line, the GDX ETF is likely to garner similar support.
2. The GDX ETFs late-March 2020 high should also elicit buying pressure.
3. If we copy the magnitude of the late-February/early-March decline and add it to the early-March bottom, it corresponds with the GDX ETF bottoming at roughly $27.50.

Keep in mind though: the interim downside target is based on the assumption of a steady S&P 500. If the stock market plunges, all bets are off. For context, when the S&P 500 plunged in March 2020, the GDX ETF fell below $17, and it took less than two weeks for it to move as low from $29.67. As a result, U.S. equities have the potential to make the miners’ forthcoming swoon all the more painful.

If gold forms an interim bottom close to $1,600, this could also trigger a corrective upswing in the mining stocks, but it’s too early to say for sure whether that’s going to be the case or not.

Also supporting the potential move, the GDX ETF’s head and shoulders pattern – marked by the shaded green boxes above – signals further weakness ahead.

I wrote previously:

Ever since the mid-September breakdown below the 50-day moving average, the GDX ETF was unable to trigger a substantial and lasting move above this MA. The times when the GDX was able to move above it were also the times when the biggest short-term declines started.

(…)

The most recent move higher only made the similarity of this shoulder portion of the bearish head-and-shoulders pattern to the left shoulder) bigger. This means that when the GDX breaks below the neck level of the pattern in a decisive way, the implications are likely to be extremely bearish for the next several weeks or months.

Turning to the junior gold miners, the GDXJ ETF will likely be the worst performer during the upcoming swoon. Why so? Well, due to its strong correlation with the S&P 500, a swift correction of U.S. equities will likely sink the juniors in the process.

What’s more, erratic signals from the MACD indicator epitomizes the GDXJ ETF’s heightened volatility.

Please see below:

To explain, I wrote on Mar. 12:

The above chart is a big red warning flag for beginner investors. The flag reads: “verify the efficiency of a given tool on a given market, before applying it”.

The bottom part of the above chart features the MACD indicator. Normally, when the indicator line (black) crosses its signal line (red), we have a signal. If it’s moves above the signal line, it’s a buy sign, and if it moves below it, it’s a sell sign.

But.

If one actually looks at what happened after the previous “buy signals” in the recent months, they will see that in 5 out of 6 cases, these “buy signals” practically marked the exact tops, thus being very effective sell signals! In the remaining case, it was a good indication that the easy part of the corrective upswing was over.

I’m not only describing the above due to its educational value, but because we actually saw a “buy signal” from the MACD, which was quite likely really a sell signal.

More importantly though, the MACD indicator is far from a light switch. While false buy signals often precede material drawdowns, the reversals don’t occur overnight. As a result, it’s perfectly normal for the GDXJ ETF to trade sideways or slightly higher for a few days before moving lower. This is what we saw last week

But how low could the GDXJ ETF go?

Well, just like the GDX ETF, the S&P 500 is an important variable. However, absent an equity rout, the juniors could form an interim bottom in the $34 to $36 range and if the stocks show strength, juniors could form the interim bottom higher, close to the $42.5 level. For context, the above-mentioned ranges coincide with the 50% and 61.8% Fibonacci retracement levels and the GDXJ ETF’s previous highs (including the late-March/early-April high in case of the lower target area). Thus, the S&P 500 will likely need to roll over for the weakness to persist beyond these levels.

Some people (especially the permabulls that have been bullish on gold for all of 2021, suffering significant losses – directly and in missed opportunities) will say that the final bottom is already in. And this might very well be the case, but it seems highly unlikely to me. On a side note, please keep in mind that I’m neither a permabull nor a permabear for the precious metals sector, nor have I ever been. Let me emphasize that I’m currently bearish (for the time being), but earlier this month, we went long mining stocks on March 4 and exited this trade on March 11.

Another reason (in addition to the myriads of signals coming not only from mining stocks, but from gold, silver, USD Index, stocks, their ratios, and many fundamental observations) is the situation in the Gold Miners Bullish Percent Index ($BPGDM), which is not yet at the levels that triggered a major reversal in the past. The Index is now back above 27. However, far from a medium-term bottom, the latest reading is still more than 17 points above the 2016 and 2020 lows.

Back in 2016 (after the top), and in March 2020, the buying opportunity didn’t present itself until the $BPGDM was below 10.

Thus, with sentiment still relatively elevated, it will take more negativity for the index to find the true bottom.

The excessive bullishness was present at the 2016 top as well and it didn’t cause the situation to be any less bearish in reality. All markets periodically get ahead of themselves regardless of how bullish the long-term outlook really is. Then, they correct. If the upswing was significant, the correction is also quite often significant.

Please note that back in 2016, there was an additional quick upswing before the slide and this additional upswing had caused the $BPGDM to move up once again for a few days. It then declined once again. We saw something similar also in the middle of 2020. In this case, the move up took the index once again to the 100 level, while in 2016 this wasn’t the case. But still, the similarity remains present.

Back in 2016, when we saw this phenomenon, it was already after the top, and right before the big decline. Based on the decline from above 350 to below 280, we know that a significant decline is definitely taking place.

But has it already run its course?

Well, in 2016 and early 2020, the HUI Index continued to move lower until it declined below the 61.8% Fibonacci retracement level. The emphasis goes on “below” as this retracement might not trigger the final bottom. Case in point: back in 2020, the HUI Index undershot the 61.8% Fibonacci retracement level and gave back nearly all of its prior rally. And using the 2016 and 2020 analogues as anchors, this time around, the HUI Index is likely to decline below 231. In addition, if the current decline is more similar to the 2020 one, the HUI Index could move to 150 or so, especially if it coincides with a significant drawdown of U.S. equities.

Moreover, let’s keep in mind that an unwinding of NASDAQ speculation could deliver a fierce blow to the gold miners. Back in 2000, when the dot-com bubble burst, the NASDAQ lost nearly 80% of its value, while gold miners lost more than 50% of their value.

Please see below:

Right now, the two long-term channels above (the solid blue and red dashed lines) show that the NASDAQ is trading well above both historical trends.

Back in 1998, the NASDAQ’s last hurrah occurred after the index declined to its 200-day moving average (which was also slightly above the upper border of the rising trend channel marked with red dashed lines).

And what happened in the first half of 2020? Well, we saw an identical formation.

The similarity between these two periods is also evident if one looks at the MACD indicator. There has been no other, even remotely similar, situation where this indicator would soar so high.

Furthermore, and because the devil is in the details, the gold miners’ 1999 top actually preceded the 2000 NASDAQ bubble bursting. It’s clear that miners (the XAU Index serves as a proxy) are on the left side of the dashed vertical line, while the tech stock top is on its right side. However, it’s important to note that it was stocks’ slide that exacerbated miners’ decline. Right now, the mining stocks are already declining, and the tech stocks continue to rally. Two decades ago, tech stocks topped about 6 months after miners. This might spoil the party of the tech stock bulls, but miners topped about 6 months ago…

Also supporting the 2000 analogue, today’s volume trends are eerily similar. If you analyze the red arrows on the chart above, you can see that the abnormal spike in the MACD indicator coincided with an abnormal spike in volume. Thus, mounting pressure implies a cataclysmic reversal could be forthcoming.

Interestingly, two decades ago, miners bottomed more or less when the NASDAQ declined to its previous lows, created by the very first slide. We have yet to see the “first slide” this time. But, if the history continues to repeat itself and tech stocks decline sharply and then correct some of the decline, when they finally move lower once again, we might see THE bottom in the mining stocks. Of course, betting on the above scenario based on the XAU-NASDAQ link alone would not be reasonable, but if other factors also confirm this indication, this could really take place.

Either way, the above does a great job at illustrating the kind of link between the general stock market and the precious metals market that I expect to see also this time. PMs and miners declined during the first part of the stocks’ (here: tech stocks) decline, but then they bottomed and rallied despite the continuation of stocks’ freefall.

Even more ominous, the MACD indicator is now eliciting a clear sell signal. And displaying a reading that preceded the dot-com bust in 2000, the NASDAQ Composite – and indirectly, the PMs – continue to sail toward the perfect storm.

As further evidence, the HUI Index/S&P 500 ratio has broken below critical support.

Please see below:

When the line above is rising, it means that the HUI Index is outperforming the S&P 500. When the line above is falling, it means that the S&P 500 is outperforming the HUI Index. If you analyze the right side of the chart, you can see that the ratio has broken below its rising support line. For context, the last time a breakdown of this magnitude occurred, the ratio plunged from late-2017 to late-2018. Thus, the development is profoundly bearish.

For further context, the ratio is mirroring the behavior that we witnessed in early 2018. After breaking below its rising support line, the ratio rallied back to the initial breakdown level (which then became resistance) before suffering a sharp decline. And with two-thirds of the analogue already complete today – with the ratio rallying back to its initial breakdown level (now resistance) last week – a sharp reversal could occur sooner rather than later.

In addition, because last week’s bounce was merely a technical development, the HUI Index’s recent strength is nothing to write home about. What’s more, the early-2018 top in the HUI Index/S&P 500 ratio is precisely when the USD Index began its massive upswing. Thus, with history likely to rhyme again, the outlook for the PMs remains profoundly bearish.

Moreover, please note that the HUI to S&P 500 ratio broke below the neck level (red, dashed line) of a broad head-and-shoulders pattern and it verified this breakdown by moving temporarily back to it. The target for the ratio based on this formation is at about 0.05 (slightly above it). Consequently, if the S&P 500 doesn’t decline at all (it just closed the week at 3913.10), the ratio at 0.05 would imply the HUI Index at about 196. However, if the S&P 500 declined to about 3,200 or so (its late-2020 lows) and the ratio moved to about 0.05, it would imply the HUI Index at about 160 – very close to its 2020 lows.

In conclusion, with the miners’ recent confidence likely to fade, it’s only a matter of time before they show their true colors. With the USD Index raring to go and U.S. Treasury yields seemingly exploding on a daily basis, the PMs recent move higher is akin to swimming against a strengthening current: while they’re making progress, each stroke requires more and more energy. In addition, if a drawdown of U.S. equities enters the equation, the metaphor will be akin to swimming against a tsunami. The bottom line? Long positions in the PMs offers more risk than reward over the next several weeks or so. However, once the medium-term climax is complete, it will be smooth sailing once again.

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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The yellow metal’s behavior looks more bearish now than it did in 2017-2018. The USDX has a lot of bullets in its chamber, and gold can be riddled with them.

Plenty of warning signs on the near-term horizon: The USDX is after a long-tern breakout, traders are reducing net-short positions, and the slightest shift in U.S. dollar sentiment can lead the rest of the herd to follow. If a USDX resurgence is combined with an equity shock, then the precious metals are in for trouble.

Last Friday (Mar. 12), we focused quite a bit on the moves in the gold miners and how their related ETFs (GDX and GDXJ) are faring and which will suffer most during the next phase of the decline. We also touched on this subject last Wednesday as well. It was important to shed light on the miners because they’ve been leading the charge in the corrective upswing. I also wanted to explain the Eurozone’s impact on the precious metals and how crucial it is to examine the bigger picture and how the pieces are all connected. Today, let’s shift our attention over to the currency perspective, namely the USDX.

The price shape and time analogies are truly remarkable right now. It’s quite often the case that history rhymes, but it’s rare for it to rhyme so closely and clearly to what we now see in the case of the USD Index. And the implications for precious metals investors are profound.

On Mar. 8, I warned that with the USD Index confronting its mid-2020 lows (resistance), a short-term dip could occur in the coming days. But after declining by 0.34% last week, the negativity could be short lived.

Case in point: the 2017-2018 analogue is already in full swing, and while short-term dips were part of the historical journey, the USDX could be about to exit its consolidation phase.

Please see below:

You can also see the similarity between two periods and the technical patterns that they included in the chart below:

Even while looking at the price moves for just a second, the size and shape of the 2017-2018 analogue clearly mirrors the 2020-current price action. Although this time, it took less than 118 days for the USD Index to move from peak to trough.

In 2017-2018, it also took 82 days for the USDX to form a final bottom (the number of days between the initial bottom and the final bottom) and the duration amounts to 21.19% of the overall timeframe. If we applied a similar timeframe to today’s move, then the USD Index should have bottomed on Feb. 12. It actually bottomed (finally) on Feb. 25, which was just 8 trading days away from the former date. Taking into account the sizes of the moves that preceded the previous declines (they took approximately one year to complete), this is extremely close and an excellent confirmation that the self-similar pattern remains intact.

In addition, as the USDX approached its final bottom in 2017-2018, gold traded sideways. Today, however, gold has been in a downward spiral. From a medium-term perspective, the yellow metal’s behavior is actually more bearish than it was in 2017-2018.

Finally, the USD Index’s breakout above its 50-day moving average (which it still holds today) is exactly what added gasoline to the USDX’s 2018 fire. Case in point: after the 2018 breakout, the USDX surged back to its previous high. Today, that level is roughly 94.5.

Moreover, gold’s trepidation alongside the USD Index strength on Mar. 12 adds even more validity to the 2017-2018 analogy.

I wrote on Mar. 10:

It’s not true that there were no pullbacks during the 2018 rally. There were, but they were simply too small to be visible from the long-term point of view.

The first notable pullback took place in early May 2018, and it contributed to a corrective upswing in the precious metals market. To be precise, the USD Index declined after rallying for 56 trading days, but gold rallied earlier – 51 trading days after the USD Index’s final bottom. The USDX’s immediate-top formed 16 trading days after its final bottom, and gold’s bottom formed 10 trading days after the USD’s final bottom.

Comparing this to the size of the previous decline in terms of the trading days, it was:

• 51 – 56 trading days / 283 trading days = 18.02% - 19.79%
• 10 – 16 trading days / 283 trading days = 3.53% - 5.65%

More importantly though, when the USD Index turned a short-term decline into consolidation in mid-2018, gold’s hesitant reaction highlighted the yellow metal’s anxiety. And what followed? Well, gold’s next move was significantly lower, while the USD Index’s next move was significantly higher. This means that it was likely a good idea that we took profits from our long positions recently when the GDX moved to $32.96 (opening at $30.80 - $31).

Please see below:

In addition, if we analyze the pairs’ very recent price action, it’s a splitting image.

On Friday (Mar. 12), the USD Index rallied by 0.28%, while gold was (roughly) directionless despite the intraday volatility. And just like in 2017-2018, the yellow metal’s behavior signals a forthcoming climax. As a result, gold and the USD Index are behaving exactly as they did before going their separate ways in 2017-2018. And this means a bearish gold price prediction for the following weeks (not necessarily hours, though).

Please see below:

To explain, I wrote on Mar. 10:

Let’s examine the current situation: the preceding decline lasted for 200 trading days and there were 41 – 42 trading days between the final USDX bottom and the short-term reversals in gold and USDX. Comparing this to the final USDX bottom, we get 7 – 8 trading days.

Applying the previous percentages to the length of the most recent medium-term decline in the USD Index provides us with the following:

• 18.02% - 19.79% x 200 trading days = ~36 - ~40 trading days
• 3.53% - 5.65% x 200 trading days = ~7 - ~11 trading days

The above estimation of about 36 – 40 trading days almost perfectly fits the current 41 – 42-day delay, and the estimation of about 7 – 11 trading days almost perfectly fits the current delay of 7 – 8 trading days.

In other words, the analogy to the 2018 performance does not only remain intact – it actually perfectly confirms the validity of the current corrective upswing. Once again, it’s very likely just a pullback, not a big trend reversal.

The bottom line?

Given the size of the 2018 upswing, 94.5 on the USD Index is likely the first, of many, potential upside targets.

Adding to the list of upside catalysts, the USD Index still has plenty of other bullets in its chamber. For instance, we’re also in the early innings of a shift in U.S. dollar sentiment. With short interest hitting an all-time high in late-2020, it was a complete fire sale. Today, however, short interest may have peaked.

Please see the below chart based on the CoT report:

Please consider how big rallies followed the moments when the net speculative position as % of total open interest started to rally back up after being oversold for months. The situation here is still more extreme than it was in early 2018 and 2014, suggesting that the upcoming rally might be bigger than the ones that we saw then.

As further evidence, speculative futures traders (non-commercial) actually reduced their net-short positions by 1,216 contracts last week (the net of the two values in the red box below). As a result, the slightest shift in sentiment could lead the rest of the herd to follow.

Finally, let’s not forget that the USD Index is after a long-term, more-than-confirmed breakout. This means that the long-term trend for the U.S. dollar is up.

In conclusion, the USD Index is likely shifting from consolidation to ascension. With the size, scope and duration of the recent price action mirroring 2017-2018, it’s only a matter of time before the USD Index’s medium-term breakout gives way to a material breakthrough. What’s more, the USD Index is finally reacting to the rise in U.S. Treasury yields. Initially ignoring the late-2020 surge, a bottom, and subsequent rally in the U.S. 10-Year Treasury yield has lifted the USD Index 80% of the time since 2003. And with the relationship seemingly restored in 2021, the combination is profoundly bearish for the PMs, especially given today’s triangle-vertex-based reversal in gold.

LETTERS TO THE EDITOR

Q: I was just about to join your Gold service, when I noticed the option to receive ALL trading advice, stocks, oil, etc. But I am confused by something. At the moment, PR seems to think that we may possibly have seen the top in U.S. stocks, and even if not, that a top is not far away (correct me if I have misinterpreted his advice).

But when I look at your stock advice section, Matthew Levy seems to be of the opposite opinion.

How is this intra-company variance possible – your senior (PR) adviser giving out (what I interpret to be) advice that contrasts with another member of your team?

I will definitely join the Gold service, but I'd just like to understand the nature of the other advice before deciding if I want access to it or not.

Many thanks

A: Thank you for the question – this is an important subject to explain. Before replying more precisely, I would like to stress that we don’t provide investment advice, only our general opinions on the markets.

Having said that, I would like to stress that I’m not imposing my views about any market to any other analyst that is providing their analyses on SunshineProfits.com, nor am I consulting my analyses (and require approval) from other analysts. To be 100% clear, every now and then, we’re discussing some issues with each other, but with mutual respect, we then describe the situation exactly as each of us sees it, which may or may not be in tune what others think.

This means that at times two people providing analyses might have opposing views on the same market.

For now, there is only one person specializing in directional trades in the case of any single market, but this will not be the case in the future – there will be more authors for a single market that might have different views, different strategies, different philosophies and approaches. This is not a “bug” but a “feature”. If everything was “set” by one person (for example, by me), there would be little-to-no benefit from having access to the thoughts and views offered by other authors, as there would be no real additional value from reading the same views.

Besides, based on my knowledge and market research, people usually want to read diverse opinions on the internet before making up their mind about something. Therefore, that’s exactly what we want to provide them with through our service. Why can’t people get diverse opinions without having to leave the platform?

I’m not afraid that my views get challenged, as it’s not my goal to prove that I’m always going to be correct (which is obviously not possible), nor am I interested in “flexing” power. My goal is to provide the best service to people who join our platform. I think the way to achieve this is through allowing authors to be independent and true to their views.

What I do mind is that the points taken in analyses be well researched, that the analyses are professional, ethical, and are created with great care regarding readers. Moreover, the authors need to adhere to my and this company’s WHY, which is: “to discover and share knowledge with people, so that they can improve their lives”. The analyses can’t be used to promote personal agendas or try to indoctrinate people with regards to an author’s political (or other) views (in fact, there was even a case where an author was forbidden to publish their analyses with us due to this very reason). The analysts are also forbidden to take any remuneration from any companies or ETFs that they might describe in their analyses in order to avoid both real and potential conflicts of interest. However, having opposite views to other authors on the platform is not and will not be forbidden, even if one would have opinions about the market that oppose the ones of the Editor-in-chief. I – PR – will be carefully reviewing the work, approach, and professional background of those that want to join our platform.

Also, Matthew Levy, CFA spotted many profitable trades in the specific (sector-based, including emerging markets) ETFs, which I wasn’t paying attention to, as that’s not my specialty (the precious metals sector is). If you’re considering broadening the scope of available services, and you’re interested in the stock market, I suggest that you give Matthew Levy’s Stock Trading Alerts a try.

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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Forget gold and silver for a moment. Do you hear the music? Yes, it’s coming from the mining ETFs club. But how long will the party last?

And more importantly, why miners, you may ask? Because miners tend to outperform in the early days of a major rally.

After closing only $0.10 below my initial downside target of $31 on Mar. 1, the GDX ETF could be ripe for an upward revision. Able to ignore much of last week’s chaos, the GDX ETF’s outperformance of gold and silver signals that the tide has likely turned.

Please see below:

Figure 1

To that point, I warned on Mar. 1 that help was on the way:

The GDX ETF has garnered historical support at roughly $29.52. The level also coincides with the early-March high, the mid-April low and the 61.8% Fibonacci retracement level. As a result, a corrective upswing to ~$33/$34 could be the miners’ next move.

Furthermore, after alerting subscribers on Mar. 4 – writing that when gold moves to $1,692, we’ll automatically open long positions in the miners – the GDX ETF ended Friday’s (Mar. 5) session up by 3.2% from my initial entry of ~$30.80 - $31. Thus, from here, the GDX ETF has roughly 3.8% to 7.0% upside (as of Friday’s close) before the $33/$34 levels signals that the momentum has run its course.

For now, though, positioning for more upside offers a solid risk-reward proposition. Prior to the initial decline, miners were weak relative to gold. However, after outperforming on Mar. 5, their steady hand was a sign of short-term strength. If you analyze the chart below, you can see that the size and shape of the current price action actually mirrors what we witnessed back in April.

Please see below:

Figure 2 - VanEck Vectors Gold Miners ETF (GDX), GDX and Slow Stochastic Oscillator Chart Comparison – 2020

For context, I wrote on Mar. 5:

Miners stopped their decline practically right in my target area, which I based on the 50% Fibonacci retracement and the 2020 highs and lows. Moreover, the proximity of the $31 level corresponds to the 2019 high and the 2016 high. Since so many support levels coincide at the same price (approximately), the latter is likely to be a very strong support. Moreover, the RSI was just close to 30, which corresponded to short-term buying opportunities quite a few times in the past.

In addition, a short-term upswing could provide a potential pathway to $35 – as this level also corresponds with the GDX ETF’s late-February high, its monthly declining resistance line and its 50-day moving average. The abundance of resistance levels – combined with the fact that an upswing would further verify the GDX ETF’s breakdown below the neckline of its potential head and shoulders pattern – should keep the upward momentum in check.

Over the medium-term, the potential head and shoulders pattern – marked by the shaded green boxes above – also deserves plenty of attention.

For context, I wrote previously:

Ever since the mid-September breakdown below the 50-day moving average, the GDX ETF was unable to trigger a substantial and lasting move above this MA. The times when the GDX was able to move above it were also the times when the biggest short-term declines started.

(…)

The most recent move higher only made the similarity of this shoulder portion of the bearish head-and-shoulders pattern to the left shoulder (figure 2 - both marked with green) bigger. This means that when the GDX breaks below the neck level of the pattern in a decisive way, the implications are likely to be extremely bearish for the next several weeks or months.

Due to the uncanny similarity between the two green rectangles, I decided to check what happens if this mirror-similarity continues. I used purple, dashed lines for that. There were two important short-term price swings in April 2020 – one shows the size of the correction and one is a near-vertical move higher.

Copying these price moves (purple lines) to the current situation, we get a scenario in which GDX (mining stocks) moves to about $31 and then comes back up to about $34. This would be in perfect tune with what I wrote previously. After breaking below the head-and-shoulders pattern, gold miners would then be likely to verify this breakdown by moving back up to the neck level of the pattern. Then, we would likely see another powerful slide – perhaps to at least $24.

This is especially the case, since silver and mining stocks tend to decline particularly strongly if the stock market is declining as well. And while the exact timing of the market’s slide is not 100% clear, stocks’ day of reckoning is coming. And it might be very, very close.

As I explained previously, based on the similarities to the 1929 and 2008 declines, it could be the case that the precious metals sector declines for about 3 months after the general stock market tops. And it seems that we won’t have to wait long for the latter. In fact, the next big move lower in stocks might already underway, as the mid-Feb. 2021 top could have been the final medium-term top.

In conclusion, the gold miners should continue to glisten as oversold conditions buoy them back to the $33-$35 range. Due to the GDX ETF’s recent strength, combined with gold rallying off of the lows on Mar. 5, the PMs could enjoy a profitable one-week (or so) party. However, with the celebration likely to be short-lived, it’s important to keep things in perspective. While this week’s performance may elicit superficial confidence, medium-term clouds have already formed. As a result, positioning for an extended rally offers more risk than reward.

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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After gold came down hard last week, it might be in a for a short pause and corrective upswing. What will the yellow metal’s next chapter bring for the miners? How high can they go if gold rallies from here?

As gold recently moved very close to my approximate target of $1,700, the senior miners (GDX) ended Friday’s (Feb. 26) session $0.13 above my initial downside target of $31. And while an eventual flush to the $23 to $24 range (or lower) remains on the table, a corrective upswing could be next in line.

To explain, if gold can bounce off of the $1,670 to $1,700 range, the GDX ETF will likely follow suit. Thus, while the miners are likely to move drastically lower over the medium-term, a decline of nearly 11% over the last two weeks has given way to short-term oversold conditions.

Please see below:

Figure 1

Even more precise, if you analyze the chart below, you can see that the GDX ETF has garnered historical support at roughly $29.52. Moreover, the level also coincides with the early-March high, the mid-April low and the 61.8% Fibonacci retracement level. As a result, a corrective upswing to ~$33/$34 could be the miners’ next move.

Please see below:

Figure 2 - VanEck Vectors Gold Miners ETF (GDX), GDX and Slow Stochastic Oscillator Chart Comparison – 2020

Remember though, if gold does bounce off of the $1,670 to $1,700 range, and the miners are able to ride the momentum higher, ~$33 to ~$34 is where the rally likely ends. From there, the bearish medium-term trend will likely continue, with the miners declining to my secondary target range of $23 to $24.

From a medium-term perspective, the potential head and shoulders pattern – highlighted by the shaded green boxes above – also deserves plenty of attention.

Ever since the mid-September breakdown below the 50-day moving average, the GDX ETF was unable to trigger a substantial and lasting move above this MA. The times when the GDX was able to move above it were also the times when the biggest short-term declines started.

Looking at the chart above, the most recent move higher only made the similarity of this shoulder portion of the bearish head-and-shoulders pattern to the left shoulder (figure 26 - both marked with green) bigger. This means that when the GDX breaks below the neck level of the pattern in a decisive way, the implications are likely to be extremely bearish for the next several weeks or months.

Due to the uncanny similarity between the two green rectangles, I decided to check what happens if this mirror-similarity continues. I used purple, dashed lines for that. There were two important short-term price swings in April 2020 – one shows the size of the correction and one is a near-vertical move higher.

Copying these price moves (purple lines) to the current situation, we get a scenario in which GDX (mining stocks) moves to about $31 and then comes back up to about $34. This would be in perfect tune with what I wrote previously. After breaking below the head-and-shoulders pattern, gold miners would then be likely to verify this breakdown by moving back up to the neck level of the pattern. Then, we would likely see another powerful slide – perhaps to at least $24.

This is especially the case, since silver and mining stocks tend to decline particularly strongly if the stock market is declining as well. And while the exact timing of the market’s slide is not 100% clear, the day of reckoning for stocks is coming. And it might be very, very close.

As I explained previously, based on the similarities to the 1929 and 2008 declines, it could be the case that the precious metals sector declines for about 3 months after the general stock market tops. And it seems that we won’t have to wait long for the latter. Perhaps the next big move lower in stocks is already underway.

In conclusion, the sun may be about to shine on the precious metals, even if the upcoming rally is not yet destined to last. If the yellow metal can rally off of the $1,670 to $1,700 range, the miners have a pathway to ~$33/$34. Supporting a short-term bounce, abnormally high short interest in U.S. Treasuries could be a contrarian indicator, with a temporary calming of the priors weeks’ yield surge adding fuel to the PMs’ fire. If so, the favorable backdrop could support a temporary bounce before gold and the miners resume their medium-term downtrends.

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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