The next several months are likely to be very disappointing for the precious metals bulls…
In yesterday’s extensive Alert (titled So Many Bullish Factors…That Gold Is Ignoring) we wrote about multiple factors that are likely to drive the precious metals market in the future. In particular, we emphasized why the next several months are likely to be very disappointing for gold bulls. The last few years have likely been disappointing to silver and mining stock bulls already (with exception of early 2016) – it is only gold that is up considerably. Silver and miners are visibly below their 2016 highs. In fact, silver is only a few dollars above its 2015 bottom. That’s not a bull market in the precious metals sector.
We already saw silver slide yesterday, but when we were writing yesterday’s analysis, miners’ were not yet trading. We wrote that the outlook for them was bearish, but did they really respond with declines?
PMs in the Short-Term
Yes, that’s exactly what they did. Yesterday’s close in the HUI Index was the second lowest close of 2020. And that happened on the same day that gold was trying to break above its previous yearly high. That’s a clear sign of weakness of both the miners and the precious metals sector in general.
And what about the aftermath of gold’s failed attempt to break above the February high?
Gold invalidated the breakout in terms of the closing prices, which means that in those terms, there was no new yearly high. The yearly high – in terms of the closing prices – formed on February 24 – one day after we had opened our short positions, and one day before we increased their size. This position is practically flat at this time, but the ones in silver and miners are very profitable, which emphasizes the benefits of being diversified among more than one market.
The invalidation of gold’s breakout in intraday terms is a very bearish phenomenon for the short term. No wonder that gold is declining today.
The history tends to repeat itself to a considerable degree. Do you remember how gold topped in 2011?
Lessons from the 2011 Gold Top
Gold plunged significantly initially – by about 11% – after which it rallied back up and topped about $8 above the previous high. It declined on the day that it reached this new intraday high, and it also declined on the following day.
What happened this year?
Gold plunged significantly initially – by about 7.5% – after which it rallied back up and topped $12.60 above the previous high. It declined on the day it reached this new intraday high (yesterday), and it’s also declining on the following day (today).
Identical cases? No. Very similar? Definitely – and the implications are very bearish for the following weeks and months.
But there’s more.
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Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager