Just as with crude oil, the latest Covid-19 vaccine news is causing gold to teeter-totter in small and indecisive daily price swings. Almost nothing changed on the precious metals market and related markets yesterday (Nov 16^th), but the key word here is “almost”. There were small changes which can act as clues - bearish clues.

First, gold and silver did practically nothing, despite a slightly lower close in the USD Index, which is bearish. Precious metals should have moved higher given the above, and they failed to do so.

Second is the performance of mining stocks. Miners ended yesterday’s session lower despite nothing in both gold and silver, and a higher close in the general stock market. Given the above, miners “should have” done nothing or moved somewhat higher.

Miners did move higher, but only initially. They then reversed and ended the session lower. This tells us that miners don’t really want to move higher. Together with the small but still bearish indication from the USD-PMs link, this means that the implications of yesterday’s session are bearish for the near term.

Besides, that’s the third day in a row when miners started the session higher, only to disappoint and decline during the day.

Before summarizing, we would like to discuss one specific thing: gold’s performance around Thanksgiving.

Gold’s Performance around Thanksgiving

Thanksgiving is on the fourth Thursday of each November, which means that the holiday always falls between November 22 and 28. What’s usually happening to the price of gold before and after this period? Let’s check gold’s seasonality for Q4.

During this period, gold is usually just before forming a short-term top and starting the biggest decline within the final quarter of the year.

Please note that the accuracy measure as to when the top is likely to be is relatively low, but soars right before gold’s plunge. This means that while it’s not that clear when gold is likely to top, it’s quite probable that we are going to see some kind of important top regardless of when exactly that takes place. Could it be slightly ahead of Thanksgiving? Yes. Could it be slightly after it? That’s possible as well.

But this year is not like other years, and I don’t mean the pandemic. This year, particularly this November, is special because of the U.S. presidential elections. Therefore, instead of taking into account the average of the previous periods around all recent Thanksgivings, one should focus on the Thanksgivings which were concurrent with presidential elections.

Gold and Thanksgiving during the Presidential Election Years

Let’s examine the last four cases, when gold was already after the 1999-2000 bottom and within its secular bull market.

Starting with the most recent case:

Back in 2016, the decline simply continued after Thanksgiving, and gold bottomed in the second half of December.

Four years earlier, in 2012, gold topped right after Thanksgiving and – just like in 2016 – it bottomed in the second half of December.

In 2008, gold topped right before Thanksgiving and it bottomed in the first half of December.

Finally, in 2004, gold topped shortly after Thanksgiving, and it formed an initial bottom in the first half of December. However, it then declined once again, further reaching bottom in January and February 2005 (two separate bottoms).

Consequently, Thanksgiving during the U.S. presidential election year had a bearish follow-up for gold in practically all four cases. Sometimes it was a bit early and at other times a bit late, but overall, it seems that one should be prepared for declines in the yellow metal during the final days of November and early part of December.

This pattern fits in line with my other thoughts on the gold market. As the USD Index appears to have ended forming its broad bottom pattern, it’s likely to rally, causing gold to slide. At some point gold is likely to stop responding to the dollar’s bearish indications, and based on the above analysis, we expect this might take place in December.

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Przemyslaw Radomski, CFA
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If history is any indicator, then patterns tend to repeat themselves and gold is no exception. The patterns emerging now are retracing events which followed in the wake of the 2016 presidential elections. As it’s taking a breather, bearish signs continue to point at gold being poised for a decline.

Overall, as the outlook remains bullish for the USD Index, it remains bearish for the precious metals sector. This is particularly the case if we take into account that recently, the Gold Miners Bullish Percent Index ($BPGDM) showed the highest possible overbought reading.

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 Gold Miners Bullish Percent Index to move up once again for a few days. It then declined once again. We saw something similar also this time. 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. Given the situation in the USD Index, it seems that we’re seeing the same thing also this time.

Please note that back in 2016, after the top, the buying opportunity didn’t present itself until the Gold Miners Bullish Percent Index was below 10. Currently, it’s above 70, so it seems that miners have a long way to go before they bottom (perhaps a few months – in analogy to how gold declined in 2016).

On Thursday (Nov 12^th) and Friday (Nov 13^th) of last week, miners moved and closed higher, but it’s important to note that their upswing was tiny and not accompanied by strong volume. In other words, it has all the characteristics of the breather that’s going to be followed by another move in the direction in which the market had been moving previously. The previous move was down, so the implications are bearish.

The intraday nature of Friday’s and Thursday’s moves is also quite informative. In both cases miners moved higher – just as gold did – but then they declined, erasing large part of the preceding gains before the end of the session. That’s yet another clue confirming the counter-trend nature of the recent upswing in the miners.

It seems that in the previous weeks, miners once again rallied in the manner that is similar to other sessions that we marked with blue ellipses on the chart.

In particular, what we saw in mid-September appears similar to what we see right now. Back then, the GDX ETF was also after a small breakout above its short-term, blue support line and the 50-day moving average. A relatively sharp short-term decline followed at that time, and the same seems likely also this time.

Also, let’s not forget that the GDX ETF has recently invalidated the breakout above the 61.8% Fibonacci retracement based on the 2011 – 2016 decline.

When GDX approached its 38.2% Fibonacci retracement, it declined sharply – it was right after the 2016 top. Are we seeing the 2020 top right now? This is quite possible – PMs are likely to decline after the sharp upswing, and since there is only less than two months left before the year ends, it might be the case that they move north of the recent highs only in 2021.

Either way, miners’ inability to move above the 61.8% Fibonacci retracement level and their invalidation of the tiny breakout is a bearish sign.

The same goes for miners’ inability to stay above the rising support line – the line that’s parallel to the line based on the 2016 and 2020 lows.

Thank you for reading our free analysis today. Please note that the following 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
Editor-in-chief, Gold & Silver Fund Manager

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Gold is consolidating its recent losses, having inched only slightly higher on Thursday. Once again, practically nothing changed on the precious metals market in the last 24 hours (except for the miners’ daily decline), so today’s analysis will generally be almost entirely a quote from what I wrote in previous analyses.

I’ll start with a quote from yesterday’s analysis, and I will update it whenever necessary (removing italics from the changed parts).

Gold truly plunged on Monday (Nov 9), erasing practically the entire election-uncertainty-based rally in just one day. I admit that I didn’t expect this decline to be as big on a single day, but the gold market was definitely ready for a decline, and since it got an unexpected boost from Pfizer (the optimistic test results regarding the possible Covid-19 vaccine), gold sank.

This situation emphasizes why it’s often a good idea to stick to one trading position even if it’s possible that one sees a countertrend move on a more short-term basis.

Of course, there will be some who will say that all the technical work resulting in me expecting gold to slide shortly after the U.S. elections was useless, as gold simply responded to more-or-less random news from Pfizer.

But why did gold decline in light of this news at all? Back in March, gold was declining as Covid-19 cases increased rapidly, so if we’re about to see this trend reversed, shouldn’t gold rally instead?

And even if one agrees that the Covid-19 vaccine is fundamentally bad for gold (and it is, as it decreases the demand for safe-haven assets, since the situation is seemingly getting back to normal), then why did gold decline almost $100 in a single day, instead of declining $4, $7, $15, or any other – insignificant – number of dollars?

And why did gold end the session lower without a visible rebound, even though the general stock market erased most of its intraday gains before the session was over ? Given the above, it seems the market realized that initial testing is far from being proof that the vaccine is indeed safe (for long-term use as well), and even further away from being introduced. If people realized that they got ahead of themselves with regard to stocks, then why didn’t the same happen with regard to gold?

With all these questions in mind, things are no longer as simple as they might have appeared at first sight.

I’ll tell you why – because the vaccine announcement was just an additional trigger that wasn’t even necessary for gold to decline. The trigger’s presence caused gold to decline more than it would have otherwise, however without it, gold would have declined anyway, due to all the technical reasons.

I featured multiple reasons in Monday’s analysis, and I encourage you to read it, if you haven’t had the chance to do so, and today, I would like to show you one thing that might be too obvious for one to notice.

It’s about gold’s, silver’s, and miners’ relative performance to what happened in the US Index, and the general stock market since early September.

The USD Index moved close to its September low, while the S&P 500 moved to its September high. Did PMs and miners exhibit similar strength? No! Gold closed about $150 below its September high, silver closed about $5 lower, and the GDX closed about $4 lower.

Gold ended Monday’s session close to $1,850, and based on what I wrote on Monday, it seems that the USD Index is on the verge of moving much higher, which will likely trigger more declines in gold. And indeed, since gold just moved to its September lows on Monday and ended the daily decline there, it will now likely take a breather.

Since gold moved about $20 higher in terms of the daily closing prices on November 10, this might have been “it” – the breather might already be over. Whether that was the case or not, I expect to see a breakdown shortly. This breakdown would be likely to lead to gold declining to about $1,700 – in tune with what I’ve been writing for weeks. I expect gold to rally back up (above $2,000 and beyond) only after declining significantly. And this decline is likely already underway.

Thank you for reading our free analysis today. Please note that the following 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
Editor-in-chief, Gold & Silver Fund Manager

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It’s tempting to read into the recent small upswings in the price of gold and the stock market as a sign that things are on the up. Despite these short-term moves, the writing is in the charts and the charts point to bearish forces gaining strength.

As gold declines, and the general stock market declines as well, miners are likely to truly slide, taking bearish cues from both.

Gold moved somewhat higher yesterday, and miners moved lower yesterday – even below their Monday intraday lows. Based on these moves, we have a situation where all key parts of the precious metals sector: gold, silver, and mining stocks are somewhat above their recent lows, but still close to them. In other words, what might have appeared to be strength in the miners (Monday’s decline was limited in the case of miners when compared to the one in gold), is no longer present.

Moreover, please note that on the above chart we see at least three self-similarities:

1. GDX just behaved and topped like in the previous cases that I had marked with blue ellipses
2. GDX just invalidated the short-term breakout above the declining blue resistance line – just like in September
3. GDX just rallied for a bit more than a week and stayed above the 50-day moving average for a few days, after which it declined in a rather volatile manner – just like what we saw in the first half of March 2020

All these self-similarities have bearish implications for the following days, so expecting a bigger rebound or a rally, might not be the best course of action at this time. Besides, if the general stock market moves lower, and given the likely decline in gold, miners would be likely to magnify S&P’s declines – just like they did in March.

And why would the general stock market decline from here?

It just got a significant boost from Pfizer as well as a boost from lower uncertainty based on the U.S. presidential election results. How did it react to it? It soared above the previous highs…

But only initially. The S&P 500 index failed to hold onto its gains, and it erased most of the rally before the session was over. It declined back below the previous 2020 high, which means that it invalidated the initial breakout. The bearish forces were too strong.

If the bearish forces were too strong right now – given both above-mentioned bullish boosts – then the bulls are unlikely to push stocks above their September high anytime soon.

Technically speaking, we just saw a profound shooting star reversal candlestick, which formed on huge volume, as well as invalidation of the breakout above an important level. This is a very bearish combination.

Consequently, I think that miners will get a powerful bearish push from the stock market and that they will slide further. Not necessarily today, as Monday’s decline might (! – doesn’t have to) require an additional quick breather, but the following days and weeks look very bad for the precious metals sector (including the miners).

Thank you for reading our free analysis today. Please note that the following 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
Editor-in-chief, Gold & Silver Fund Manager

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