Yesterday's top news was the initial Brexit deal, which caused some turmoil, in particular on the currency market. The emphasis should go on "initial" as there's really no real deal yet - whether there is one will be determined tomorrow, during Saturday's vote in the UK. Yet, the precious metals' reactions so far are insightful nonetheless, and they are in tune with what we have been writing about lately. Let's go into the details.

• Read more

In yesterday's analysis, we discussed gold stocks, and what they tell us about the upcoming year. They disclosed not only what's likely to happen in a year, but also they promised to let us know when there are going to be tradable opportunities suitable for betting on bigger corrections within the decline. Gold stocks are not the only mining stocks that can provide us with valuable info, though. Silver miners, please step forward.

• Read more

Gold miners were in the rallying mode in October but all it took were only three days for the GDX ETF (the flagship ETF for the senior mining stocks) to move to a new monthly low and close at the lowest level since mid-July. But you know what? This is really, really boring compared to what we just discovered in gold miners' long-term chart. In the previous weeks we discussed quite a few analogies, with the flagship one being the link between the current situation and what we saw in mid-90s. The long-term strength in the USD Index is likely to translate into much lower gold prices. The key takeaway of these analogies is that the decline to the final lows in the precious metals market has likely begun in August. The thing that we just discovered in the gold stock chart fits all this so well that we're surprised that we haven't seen it sooner. To our defense, we still saw it sooner than anyone else.

So... What would you say if we told you that the gold stock history is repeating with an almost exact 20-year delay? It might raise a few eyebrows and nothing more... Until you saw the chart that shows you how precise it is and how well it fits to what happened now and what happened in 2012 as well. On to the chart, then!

The Miners' Analogy

(as a reminder, clicking on the chart will expand it)

Let's start with something relatively more familiar - the Fibonacci retracements. Back in 2012, the HUI Index retraced almost 61.8% of the preceding rally before the decline continued. That was one of the reasons that we thought that the 2019 rally won't get much above this retracement, if at all. Indeed, the breakout above this retracement was very short-lived. However, this is not the only time when this retracement stopped a sizable, yet counter-trend rally before a big decline.

The 1999 top formed almost exactly at the 61.8% Fibonacci retracement. That's one similarity between what happened recently and in 2012.

The second similarity is what's so exciting about this discovery. The length of the rally. All yellow rectangles on the above chart are identical. The 1998 - 1999, 2015 - 2016, and 2018 - 2019 rallies are identical in terms of time. Most importantly, the 1998 - 1999 and the 2018 - 2019 upswings were almost identical in terms of both: time and price. And that's in addition to both rallies ending at the same Fibonacci retracement.

Let's re-state it again. Both rallies took practically the same amount of time, and the rallies were almost alike in terms of size - percentagewise.

But wait, there's more!

The times of the year when the rally started and ended about 20 years ago are almost identical as well. The 1998 rally started right after the middle of the year and the same thing happened in 2018. The rally ended in the second part of 1999 and the same was the case right now. The month is not the same, but it's so close that the gold stock seasonality might have influenced the prices in the similar way, which means that the follow-up action could be very similar.

The Follow-Up Action

Based on the way in which the previous bear market in gold stocks ended, it seems that we have about a year of lower prices ahead of us and the HUI Index will decline at or a bit below the 80 level. That's in perfect tune with the upper one of the price target areas that we've been featuring on the above chart for some time now. The key of the additional trading techniques pointing to the 80 level or its proximity as the downside target are the early 1999, and 2011 tops as well as the early 2002 bottom, and the long-term declining support line based on the 2008 and 2016 lows.

The implications extend beyond just the final target - the analogy can tell us something important about the likely corrective upswings that we'll see along the way. Some of them will be relatively small, but there will also be those that are visible even from the long-term point of view, such as the one that we saw in early 2000.

How to detect them? Let's get back to the basics. When does a price rally, even though it remains in a downtrend? When it gets too low, too soon - at least in many cases. The key follow-up question is "too low compared to what?". And that's where the analogy to the 1999 - 2000 decline comes into play.

The purple line is the line that connects the start and the end of the 1999 - 2000 decline. The green line marks the start and the end of the 2012 - 2013 decline and the black one is based on the 2008 decline. There are two rules that we can detect based on these analogies.

First, the time after which we saw corrections during longer declines is similar to the times when the quicker decline ended. The end of the black line (early 2000) is also when we - approximately - saw the first big corrective upswing during the decline. Applying the same technique to the recent top provides us with mid-December (that's in about 2 months) as the likely bottoming target date. Naturally, it's likely to be just a short-term bottom that would be followed by a corrective upswing and then even lower prices.

Second, the chance of a corrective upswing and the chance that such upswing would be significant increases dramatically when price moves visibly below the dashed line. There are 3 dashed lines to choose from - each based on a different decline - so the question is which one should be used. It seems that the middle one is appropriate as it was most useful in 2000. The 2012-2013 decline took place mostly above the dashed line that connected its starting and ending point and it didn't have profound corrective upswings until it ended. What we saw 20 years ago, however, was very different. The price declined sharply initially, but then corrected a few times and the more price moved below the declining green dashed line, the bigger the corrective upswing was.

So, if the HUI moves visibly below the declining green dashed line, it will suggest that the miners got too low too fast and are likely to bounce back up sooner rather than later.

Thank you for reading. If you enjoyed this analysis and you'd like to read free follow-ups, please sign up for our gold newsletter. As soon as you sign up, you'll also get an additional bonus of 7 days of free access to our premium Gold & Silver Trading Alerts. Sign up today.

• Read more

In yesterday's extensive analysis we focused on gold, so in today's analysis we'll move to the second-most-popular precious metal and the favorite of many - silver. Silver is the metal of choice for many individual investors mainly due to two reasons. One reason is that the suspected ongoing manipulation of the silver market and the manipulation theories always gather significant interest. This reason may or may not be justified. Another reason is silver's enormous potential in the long run and its uncanny ability to soar almost vertically in the final parts of a given upswing. This reason is very well justified.

While gold is likely to rally substantially in the following years (not before declining significantly first, though), silver is likely to outperform it by a huge margin. Why? For the same reason it soared 40 years ago - the market is much smaller (it might be cornered), and the nominal price is lower (it's easier to imagine that the price of something at $20 doubles than the price of something at $2000, which makes the cheaper good more appealing to some investors). And for multiple other reasons as silver is now used more widely in the industry (how could it not be since it's the best conductor of electricity?) while the silver stockpiles are not as high as they used to be. To be clear, we're not saying that there is shortage of silver (or shortage of gold), but we are saying that there are more reasons for silver to rally than there are reasons for gold to rally. And when the time comes, silver is likely to respond in a meaningful way to the bullish forces. This time has yet to come, though.

What's happening in the white metal? That's what we're going to investigate in today's Alert.

• Read more

Precious metals moved strongly on Friday, and did so on significant volume. The reversals we have seen on Thursday got resolved, and there's little reason to doubt what's in store ahead. Let's dive into the many charts and perspectives and explore how well they support the upcoming move across the sector.

• Read more