Let’s face it, the metals are not having an easy time breaking out. Short-term rallies end up going nowhere and bearish signs are still in abundance.
Yesterday’s session was once again quite informative, and so is today’s pre-market trading. In yesterday’s analysis, I emphasized the importance of the relative weakness that we just saw in mining stocks, so let’s start with taking a look at what mining stocks did yesterday.
At first glance, yesterday’s performance might look like a bullish reversal, but zooming in clarifies that something else was actually in the works. Let’s take a look at the GDXJ 1-hour candlestick chart for details.
Yesterday’s “reversal” was actually a breakdown below the previous (mid-October) intraday lows along with the verification thereof. The GDXJ moved below the above-mentioned lows and – while it moved back up – it ended the session below them.
This is a bearish type of session.
Also, if you were wondering about the high volume in the final hour of trading – that’s relatively normal as that’s when bigger trades tend to take place.
And while mining stocks were busy verifying the breakdown, gold tried to break above its declining, red resistance line, and verify that breakout.
While yesterday’s session didn’t bring much lower gold prices (and the invalidation), today’s pre-market trading makes it clear that the attempt to break higher failed. Just like I had indicated yesterday.
This time the rising short-term support line is not there to prevent further declines as the breakdown below it was also confirmed.
What does it mean? It means that gold is likely to fall, and quite likely it’s going to fall hard.
Besides, silver price is after a major short-term breakdown, too.
After a powerful short-term rally, silver had reversed, and now it broke below its rising support line. That’s yet another bearish indication. Please note that at first silver was reluctant to decline while mining stocks moved decisively lower, which was normal during the early part of a given decline. Silver did some catching-up action yesterday, but since miners are not showing strength, I’d say that we’re getting to the regular part of a short-term move, not close to its end.
And the move lower is likely to continue, just as the move higher is likely to continue in case of the USD Index.
The USDX is after a verification of the breakout to new 2021 highs and after an about monthly consolidation above them. This is a perfect starting point for a major upswing, and we’re likely to see one soon.
All in all, while the outlook for the precious metals sector is very bullish for the following years, it’s very bearish for the following weeks.
(By Przemyslaw Radomski)