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Today’s short-term analysis will once again be in video format. However, to make a long story short, the precious metals sector declined yesterday, and what we wrote previously remains up-to-date.

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 targets for gold and mining stocks that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

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

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Gold moved slightly higher, silver soared, but miners declined on Friday. If it’s not a screaming short-term signal, I don’t know what is.

In other words, Friday’s session served as a perfectly bearish confirmation of what we’ve been writing throughout the previous week.

Let’s take a look at what happened on the markets. The below 4-hour candlestick chart features junior gold (and silver) miners, gold, and silver, through their proxies: GDXJ, GLD, and SLV ETFs.

I’m using the ETFs for all those markets so that the opening and closing hours of each candlestick are identical and can thus be really comparable.

The key thing that you can see above is that the way in which those three parts of the precious metals market behaved on Friday differed considerably.

While gold was more or less neutral, silver moved much higher, while gold miners moved… Visibly lower. In particular, it was the final few hours of Friday’s session (last candlestick) that made the difference.

If used horizontally, green lines make it easier to compare the most recent performance to the early-December high. And:

• The GLD ended the previous week very close to that high.
• The SLV ended the week above that high.
• The GDXJ ended the week well below that high.

This means that silver was just particularly strong relative to gold, and miners were just particularly weak relative to gold.

Gold miners tend to be early in a given move, while silver prices tend to lag / catch-up in the final parts of the move. That’s what we’ve been able to see on the precious metals market for many years. Naturally, there were exceptions, but the above rule still holds for the majority of the time, especially when it’s both silver-gold and miners-gold links that point to the same thing.

Now, the miners-gold link suggests that a new downtrend is starting, because miners were weak relative to gold to a big extent.

The performance of the silver price, on the other hand, suggests that the rally is coming to an end, as it is clearly playing catch-up. In fact, that’s what we also see in today’s pre-market trading (chart courtesy of https://silverpriceforecast.com).

Silver corrected much more of the recent immediate-term decline than gold did, which confirms the indications from Friday’s session.

Taking the above together points to a situation in which we are seeing a top in the precious metals market.

No surprise, the precious metals sector has recently been very strongly negatively correlated with the USD Index, which appears to have formed a major bottom.

The USD Index corrected back to its 2016 and 2020 highs, and it verified them as supports. The medium-term uptrend is now likely to resume.

And since both: gold, and the stock market have been correcting along with the USD Index (in the opposite direction, of course), as the correction in the USDX is over, it seems that the corrective downswings in gold and stocks are also ending.

All in all, it seems that the next big move in the precious metals market is going to be to the downside, and that it’s about to begin. In fact, in the case of the mining stocks, it seems to be already underway.

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 targets for gold and mining stocks 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
Founder, Editor-in-chief

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While gold’s sleigh is flying high, is a crash on the horizon?

With so many narratives floating around, bullish seasonality, recession fears and consumer resilience have combined to create a mixed picture on Wall Street. However, with the gold price running well above its fundamental value, investors’ game of hide-and-seek should end in substantial liquidations. 

For example, the S&P 500 has fallen by more than 17% in 2022. Yet, the bulk of the decline has been driven by four sectors.

Please see below:

Source: Fidelity

To explain, the red box above shows how communication services, consumer discretionary, real estate and information technology have been the worst-performing S&P 500 sectors year-to-date (YTD). In contrast, financials and materials (where the PMs live) have endured low double-digit declines, while defensive sectors like utilities, consumer staples and health care have fallen modestly. 

Now, the four laggards have largely suffered due to higher interest rates, while economically-sensitive sectors like financials, materials, industrials and energy have mostly escaped investors’ wrath. For context, their outperformance is another example of why positioning does not support the ‘imminent recession’ narrative. 

But, the important point is that with recession winds poised to grow stronger in late 2023, economically-sensitive sectors should catch up to the laggards and decline substantially. 

Please see below:

To explain, the S&P 500 is a market-cap-weighted index, so large companies like Apple, Microsoft, Amazon and Alphabet have an outsized influence on the S&P 500’s performance. Conversely, an equal-weighted S&P 500 index assigns the same weight to all companies, so smaller stocks have more say.

Therefore, if you analyze the blue line above, you can see that the S&P 500 equal weight/S&P 500 ratio has rallied sharply recently, and has largely been in an uptrend since mid-2021. This means the average stock is outperforming Big Tech, as investors rotate money into economically-sensitive sectors like financials, materials, industrials and energy.

However, while Big Tech suffered mightily and liquidity-fueled assets like the ARK Innovation ETF (ARKK) and Bitcoin slumped as the U.S. federal funds rate (FFR) rose, the ‘old economy’ stocks should be the next shoe to drop, and a realization is profoundly bearish for gold.

To that point, Morgan Stanley’s Chief U.S. Equity Strategist Mike Wilson said on Dec. 8:

“I don’t think there’s as much of a distinction between value and growth at this stage of the economic cycle unless you’re talking about the defensive parts of value [like] utilities and staples and health care.”

More importantly:

“The problem with the value stocks now is they’re probably is just as vulnerable to the economic slowdown as the over-earning growth stocks were six or 12 months ago.”

So, while resilient consumer spending and solid growth have investors hiding out in economically-sensitive sectors, they should suffer the same bearish fate as the pandemic winners. In a nutshell: it’s only a matter of time before the same slowdown that haunted technology stocks comes for financials, materials, industrials and energy. Likewise, while the gold price remains supported right now, that should change materially in the months ahead.

Furthermore, after retracing 38.2% of its preceding decline, the S&P 500 sunk below its late-June high; and combined with a similar development confronting world stocks, the S&P 500’s technical outlook also remains highly bearish. In addition, with the fundamentals and the technicals in sync, the index’s medium-term backdrop is highly ominous.

As further evidence, Morgan Stanley’s model predicts “significant downside” to S&P 500 earnings per share (EPS) growth in 2023.

Please see below:

To explain, the blue line above tracks the year-over-year (YoY) percentage change in realized 12-month S&P 500 EPS growth, while the gold dashed line above tracks Morgan Stanley’s model estimate. 

If you analyze the relationship, you can see that the pair often move in the same direction, and the gap on the right side of the chart shows how the gold line signals material weakness ahead. 

As a result, with the technicals screaming risk off and an earnings recession poised to spook the bulls in 2023, the S&P 500’s suffering should weigh heavily on the gold price. 

On top of that, let’s not forget about the bearish ramifications of silver’s outperformance. We’ve noted repeatedly that silver often runs away from gold before major drawdowns occur; and with the white metal correcting 50% of its 2022 decline, its recent outperformance is an important sell signal.

Overall, there are a plethora of bearish indicators supporting lower gold prices. So, while seasonality keeps sentiment uplifted, don’t let the short-term strength cloud your medium-term judgment. As stated previously, every inflation fight since 1954 has ended with a recession, and this bout should be no different. 

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 targets for gold and mining stocks 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’s rally was just stopped by the resistance provided by its previous high and its 60-week moving average. Will gold now reverse?

The above chart features gold price in terms of weekly candlesticks. As you can see, it just approached its August high.

And gold failed to move above it.

Last week, I wrote:

The resistance is provided by the weekly closing prices, and since the current week ends today (Dec. 2), it’s likely that gold’s rally was just stopped or that it will be stopped today.

The resistance held.

This week is not yet over, so don’t let the small size of this week’s volume fool you – it’s most likely not the case that gold is simply taking a breather. Zooming in provides extra details.

Gold, just like many other markets (i.a. stock prices), recently corrected slightly more than 38.2% of its previous move. And then it invalidated this small breakout.

During yesterday’s session, gold moved above this level once again, but only insignificantly so, and given the recent invalidation it’s unlikely that gold would be able to rally further.

If you click on the above chart and zoom it, you’ll see that right after the August top formed, gold also made a low-volume attempt to move higher. That was right before the start of the near $200 downswing.

The above happened even without the prior sell signal from the RSI indicator, and since we just saw the latter, a bearish outcome is even more likely.

Not to mention another signal from the silver-to-gold link (chart courtesy of https://goldpriceforecast.com/).

Silver, moved to its yesterday’s intraday high, while gold didn’t.

Silver once again moved higher to a much bigger extent than gold did in today’s pre-market trading, and while the size of both moves is not huge, it’s something that confirmed the previous indications, and it’s a bearish sign.

Why would silver’s outperformance be a bearish sign?

First of all, because the history shows that it worked numerous times.

Second, the silver market is much smaller, and it’s much popular with individual investors / investment public. The institutions simply can’t buy a lot of silver without moving the market, so they are not that interested in it – besides, it hasn’t performed well in the past decade. Individual investors, however, can usually freely enter the silver market, and due to multiple reasons, they often do.

The thing is that the investment public is often the last to the party – individual investors often buy close to tops, and they sell close to bottoms.

And you can see this in the price movement – silver soars relative to gold close to tops in their prices.

Since we just saw it in today’s pre-market trading, it serves as a bearish confirmation.

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 targets for gold and mining stocks 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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