So much for gold’s move above $2,000. Congratulations on avoiding the mania – it was not easy. The volume readings show that many people were caught up in the “inevitable rally” in gold. You, however, kept focused on what’s most important in the medium term, and over this time frame, this approach is likely to prove most beneficial.

As gold tried to rally to new all-time highs, I sent out an intraday Gold & Silver Trading Alert, and in it, I emphasized the likely temporary nature of this move. I wrote the following:

Yes, the situation in Ukraine is critical.

However, the two key drivers of gold price continue to point to lower gold prices, and at the same time we know that geopolitical-event-based rallies don’t last and very likely to be reversed.

These two key drivers are:

• real interest rates
• the USD Index

The USD Index is already soaring, and real interest rates are likely to increase as the nominal interest rates are about to increase – and given the recent rally in prices they might increase more than most investors expect them to.

Consequently, while – given today’s rally – it might seem like there’s no stopping gold, silver, and mining stocks, please keep the above in mind. This rally is likely to be reversed, and when it reverses, junior gold miners are likely to decline in an epic manner. And lead to epic profits in case of those, who were able not to follow the mania during the parabolic upswing.

The above remains up-to-date.

Let’s check what changed on the charts based on yesterday’s profound decline.

(Click on image to enlarge)

When I wrote yesterday’s analysis, gold was trading at about $2,020, and I wrote that, given the last few days’ volatility, it could be below $2,000 in a few hours. That’s exactly what happened next.

Taking a step back, please note that the previous breakouts above $2,000 were all invalidated sooner rather than later.

Gold tried to break above $2,000 several times:

• twice in August 2020;
• twice in September 2020 (once moving above it, once moving just near this level);
• once in November 2020 (moving near this level);
• once in January 2021 (moving near this level);
• once in February 2022 (moving near this level).

These attempts failed in each of the 7 cases mentioned above.

Yesterday, gold failed its eighth attempt. History rhymed, as it often does. Let’s keep in mind the specific similarity to the 2020 top that I described yesterday:

Gold topped at a similar price to its 2020 top, while the sharpest part of the rally started at about $1,800 (just like in 2020), and the entire rally started in the middle of the year at about $1,670.

In fact, even the moment where gold traded on huge volume for the first time during those rallies is similar. I marked that with blue dotted lines. We saw huge volume more or less in the middle of the final (sharpest) part of the upswing. The history tends to rhyme, and since it seems that the tensions have finally peaked (as I wrote in the opening part of today’s analysis) the same is quite likely for the gold price.

Gold’s big-volume reversal on Tuesday added to the decline’s credibility, making its continuation likely.

The dramatic sell signal was even clearer in the case of mining stocks, and yesterday’s invalidations of breakouts are just as telling.

(Click on image to enlarge)

Yesterday, I commented on miners’ reversal in the following way:

While the junior miners (GDXJ ETF) closed higher yesterday, they were up only slightly. At one point of the session, the GDXJ was up from its previous close by 5.74%. However, it ended only 0.86% higher. Therefore, almost the entire daily rally in junior miners was invalidated.

Yesterday’s session was therefore a profound daily reversal – in candlestick pattern terms, it was a “shooting star reversal”. These patterns should be confirmed by high volume, and yesterday’s volume in the GDXJ was the highest volume not only this year, but it was actually highest volume that we’ve seen in this ETF since mid-2020. The top is most likely in.

If I didn’t have my short position in the GDXJ ETF that’s already significant (and in tune with how significant I want it to be), I would have entered or added to this position now.

(Of course, the above is not an investment advice, nor am I saying that should increase your position, but that’s exactly what my opinion is at the moment based on what we just saw.)

The above bearish signal turned into an extremely bearish one because of GDXJ’s invalidations of previous (small, but still) breakouts. Junior miners just closed visibly below their:

• 38.2% Fibonacci retracement level;
• declining (blue) resistance line;
• late-2021 top.

Invalidations of breakouts are bearish as they show that a given market’s strength was not real and that sellers were able to overwhelm the buyers.

While mining stocks underperformed gold in a rather extreme manner on Tuesday, silver outperformed it on the same day. This was a bearish indication, and indeed, it was followed by lower prices.

(Click on image to enlarge)

On Tuesday, the GDXJ ETF was up by less than 1%, gold was up by 2.37%, and silver was up by 4.57%. Silver’s outperformance and miners’ underperformance are what we tend to see right at the top. That’s exactly what it was – a top. Silver declined profoundly, and the attempt to break above its 61.8% Fibonacci retracement level will soon be just a distant (in terms of price) memory.

On a medium-term basis, silver was simply weak relative to gold, but we saw short-term outperformance. In short, that was and continues to be bearish.

How high could silver go before declining? Given all that I wrote above, I think that silver’s top is already in. However, if it isn’t, I don’t think it would manage to move above $30.

All in all, it seems that due to the technical resistance in gold and mining stocks, the sizable – but likely temporary (like other geopolitical-event-based ones) – rally is likely to be reversed shortly. Then, as the situation in the general stock market deteriorates, junior miners will likely plunge in a spectacular manner.