When it comes to seasonality, astute traders and investors can profitably exploit the markets, and gold & silver are no exception…
While every year is unique in its own right, looking at a series of them offers quite some tendencies that can be profitably exploited by the astute trader and investor. This is where seasonality comes, and precious metals are no exception. What message does the history send for the PMs complex in June?
Gold (seasonally) and gold miners (seasonally) move tend to top in early June, so it might be the case that we’ll see another attempt to move higher here, and then the decline would take place during June.
Interestingly, there were usually two triggers for these moves: one from the USD Index, and the other from the stock market.
The USDX (seasonally) tends to bottom in early June, while stocks (seasonally) tend to form a local top. These moves are not huge, though, and the accuracy for the seasonality-based forecasts is lowest in the entire quarter.
This means that while a bottom in the USD Index and a top in stocks is likely to be “somewhere near”, it doesn’t have to take place exactly after May ends. In other words, we should already be on the lookout for either bullish or bearish signs, instead of blindly trusting the seasonal factors. They shed some light but the light itself it dimmed, like the one provided by a candle, instead of one being provided by a laser pointer.
Gold Miners’ and Their 2016 High
The laser-precision technique that tells us whether the precious metals market is going to move higher or lower, could take form of a confirmation or invalidation of a major breakout. And we currently have this exact make-or-break situation in case of gold mining stocks. We previously described the above HUI Index – flagship proxy for the gold miners – in the following way:
The HUI Index declined significantly, and then it rebounded significantly.
Both are likely linked. Miners first declined more sharply than they did in 2008, so the rebound was also sharper. Based on the stimulus and gold reaching new yearly highs, miners also rallied and tried to move to new yearly highs. It’s not surprising.
However, if the general stock market is going to decline significantly one more time, and so will gold – and as you have read above, it is very likely – then miners are likely to slide once again as well. This would be in tune with what happened in 2008.
At this time, it may seem impossible or ridiculous that miners could slide below their 2015 lows, but that’s exactly what could take place in the following weeks. With gold below their recent lows and the general stock market at new lows, we would be surprised not to see miners even below their 2020 lows. And once they break below those, their next strong resistance is at the 2016 low. However, please note that miners didn’t bottom at their previous lows in 2008 – they moved slightly lower before soaring back up.
Please note that the HUI Index just moved to its 2016 high which serves as a very strong resistance. Given the likelihood of a very short-term (1-2 days?) upswing in stocks and perhaps also in gold (to a rather small extent, but still), it could be the case that gold miners attempt to rally above their 2016 high and… Spectacularly fail, invalidating the move. This would be a great way to start the next huge move lower.
And what happened last week?
The HUI Index invalidated the breakout above the 300 level, and it also invalidated the breakout above the 2016 high (286.05) in intraday terms by closing at 285.13. This made the bearish picture for gold miners more bearish. The final confirmation of the top being in, will be gold stocks index’s close below the highest weekly close of 2016 – 278.61.
The reason we’re giving so much attention to the 2016 high right now and so little to anything else – at least in case of the gold stocks – is that what happens with regard to it really is the key to the miners’ technical outlook. Confirmed breakout above the 2016 high would be likely to result in a bigger move higher, while its invalidation is likely to result in a bigger move lower.
Given the fact that gold is not moving up despite USD Index’s sizable daily decline, it seems that we might see declines in gold and gold miners shortly (as soon as the USDX regains strength), and the decline below HUI’s highest weekly close of 2016 will serve as a great bearish confirmation for gold, silver, and miners alike.
Thank you for reading today’s free analysis. Please note that it’s just a small fraction of today’s full Gold & Silver Trading Alert. The latter includes multiple details, but most importantly, it includes the clear discussion of what will be the sign telling one that gold’s move lower is almost certainly completely over. That’s the detail, we think you might enjoy, want, and need right now.