Gold Forecast: Here Is Why I’m No Longer Bullish on Gold Miners

CFA, Editor & Founder @ Sunshine Profits
May 27, 2022

The medium-term outlook for the precious metals is profoundly bearish – and it’s about time to abandon the short-term bullish ship.

To find out why, let’s take a look at what happened in junior mining stocks.

The miners were unable to break above the lower border of the previous price gap despite the rally in the general stock market that continued yesterday. In fact, junior miners ended yesterday’s session lower.

Yes, gold is still the main driver of the juniors’ prices, but given that the S&P 500 moved up by about 2%, at least some strength in the juniors was expected. And we didn’t see it.

If it all didn’t happen so close to GDXJ’s upside target, and if stocks weren’t so close to their own upside target, it wouldn’t matter much. However, the above was the case, and thus it did matter.

Perhaps junior miners will rally more and even manage to “close the gap” by rallying to its upper border, but… so what? That’s only about $1 – $1.5 higher in the GDXJ, and its already after a ~$4 rally, which means that we’ve caught the majority of the move with our previous long position. In fact, we’ve actually caught the “easy part” of the move.

Congratulations to everyone who managed to profit on this rebound!

I called the recent rally “easy” because when sentiment becomes too extreme, it’s very likely that a correction will follow. Thus, trading it was rather easy. After all, no market moves up or down in a straight line.

Anyway, the “easy” part of the rally is definitely over, and now the rally has either ended or we entered the “difficult” part thereof. “Difficult” because it’s no longer very likely that we’ll see further move higher. Yesterday’s lack of positive reaction to stocks’ rally emphasized that. This is why I was quick to take profits here.

Remember, the strong medium-term downtrend remains intact.

While aiming to gain from a rebound (against a powerful medium-term downtrend) when it’s very likely to take place (based on the sentiment being too extreme) is something justified from the risk to reward point of view (risk is relatively low), the situation changes dramatically in the “difficult” part of the rally. In this case, the risk is big (the reversal could take place at higher prices or it could be already after the reversal…) while the profit potential is limited.

Also, in today’s pre-market trading we might be seeing a sell indication. So far it’s not strong, but still…

Silver futures are up by 1.49%, the GDXJ is up by 0.96% in London trading, the GDX is up by only 0.38% in London trading, and gold futures are up by 0.53%.

Silver has just moved to new monthly high, while gold, the GDX and the GDXJ haven’t (the latter is quite close, though). This means that we’re in a situation where silver is outperforming on an immediate-term basis, while miners are underperforming (the GDX in this case) gold. This is often what we see right before declines.

This doesn’t guarantee that the decline will start today or tomorrow, but it does indicate that it’s likely to take place within the next several days.

Summary

Summing up, it seems to me that the short-term rally in the precious metals market is either over or close to being over. In fact, it’s so close to being over that I think it’s already a good idea to be shorting junior mining stocks.

I previously wrote that the profits from the previous long position (congratulations once again) were likely to further enhance the profits on this huge decline, and that’s exactly what happened. The profit potential with regard to the upcoming gargantuan decline remains huge.

As investors are starting to wake up to reality, the precious metals sector (particularly junior mining stocks) is declining sharply. Here are the key aspects of the reality that market participants have ignored:

  1. rising real interest rates,

  2. rising USD Index values.

Both of the aforementioned are the two most important fundamental drivers of the gold price. Since neither the USD Index nor real interest rates are likely to stop rising anytime soon (especially now that inflation has become highly political), the gold price is likely to fall sooner or later. Given the analogy to 2012 in gold, silver, and mining stocks, “sooner” is the more likely outcome.

Thank you for reading our free analysis today. Please note that it is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the outline of our trading strategy as gold moves lower.

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Thank you.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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Przemyslaw Radomski, CFA, is the founder, owner and the main editor of SunshineProfits.com.  You can reach Przemyslaw at: http://www.sunshineprofits.com/help/contact-us/.


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