Gold Price Forecast: Gold Through Gold Stocks And Silver

September 9, 2019

gold and silver

And so, the rally in gold and silver has come to an end, just as we expected it to. Of course, one can say that yesterday’s slide was just a daily correction, or a pause, but this is not the case. There are myriads of reasons for it, but we want to emphasize two of them. First, gold and silver plunged without practically any daily price change in the USD Index. Second, the small breakouts above the key long-term resistance levels in gold stocks and silver have been invalidated. Still, there is some truth to the saying that nothing major happened last week. In fact, it’s completely true. Given the number and importance of the bearish factors in play, we can say that the most recent declines indeed are barely noticeable – that huge a decline is likely still ahead. So, yes, nothing really major happened… Yet.

Let’s take a look at the performance of the two less popular, but very important parts of the precious metals sector for details.

The HUI Index is the popular proxy for gold mining stocks. Their recently weak performance is one of the major reasons due to which we view the last few months as a counter-trend correction, instead of a new bull market. Yes, gold miners moved higher in the last few months, but the size of their rally is not as significant as it may appear at the first sight. Compared to the 2016 upswing, the current move is really small. Even though the recent upswing started from much higher price levels, the current high was well below the 2016 high. In fact, the recent upswing only managed to correct about 61.8% of the 2016 – 2018 decline. It was just a correction of this decline – nothing more.

The key development that we just saw in gold stocks (and silver) is what happened relative to the above-mentioned 61.8% retracement. Even though the HUI Index moved slightly above it, the move was just invalidated in a clear way. HUI closed the week well below the retracement and its decline continues also today. Invalidations of breakouts are even stronger signals than the breakouts would have been – and they don’t require any confirmations. Consequently, the decline that we just saw is much more meaningful than it may appear. It may appear to be significant, but it’s really just a beginning.

As surprising as it may be given the recent strength in silver, the white metal has also been weak.

How can silver be weak if it just rallied almost vertically? Simple – it then declined even faster. The breakout above the 61.8% Fibonacci retracement in silver was bigger than the one in gold stocks, but it was very brief anyway. Silver closed the week below the retracement just as gold stocks did with their own retracement. Silver also formed a powerful weekly reversal on huge volume, which is a screaming sell signal. These are two of the reasons behind our bearish forecast for silver for the following weeks and months.

Summary

Summing up, the big decline in the precious metals sector appears to be finally underway as gold and silver are plunging even without a rallying USD Index. Once the latter takes off, it will likely serve as fuel to the fire-like decline that’s already underway. Let’s keep in mind that taking the big investment picture into account, out of the following: gold, silver, gold stocks, silver stocks, the recent upswing was visible only in case of gold. Most of the precious metals portfolio: silver, gold miners, and silver miners suggest that what we saw in the last several months is nothing more than a corrective upswing within a bigger downtrend.

We know that these are not pleasant times for anyone who refuses to jump on the bullish bandwagon just because prices moved higher in the previous months, but what’s profitable is rarely the thing that feels good initially. In those circumstances, we simply cannot forecast gold at higher prices in the medium term. There will most likely be times when gold is trading well above the 2011 highs, but they are unlikely to be seen without being preceded by a sharp drop first.

Naturally, the above is up-to-date at the moment of publishing and the situation may – and is likely to – change in the future. If you’d like to receive follow-ups to the above analysis, we invite you to sign up to our gold newsletter. You’ll receive our articles for free and if you don’t like them, you can unsubscribe in just a few seconds. Sign up today.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

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 a subject to change without notice. Opinions and analyses were 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 believed 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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In 1933 President Franklin Roosevelt signed Executive Order 6102 which outlawed U.S. citizens from hoarding gold.

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