Gold, Miners: How Long Will Short-Term Rally Last?

Gold rallied, gold miners soared to new March highs and the USD Index finally moved lower, and most likely, these price moves are not yet over.

The precious metals market finally moved yesterday (Mar. 9) after providing us with bullish indications for quite a few days. Let’s jump right into charts and examine the details, starting with the part of the precious metals market that showed particular strength – mining stocks.

ChartDescription automatically generated

Figure 1 - VanEck Vectors Gold Miners ETF (GDX)

Even though gold moved lower in early March, gold miners stopped declining after reaching my target area based on several techniques – most importantly the 50% Fibonacci retracement based on the entire 2020 rally, and the previous lows and highs. Just as miners’ relative weakness had previously heralded declines for the entire precious metals sector, their strength meant that a rally was about to start. And that’s just what we saw yesterday (Mar. 9).

Ultimately, it seems that the above corrections will result in the GDX ETF moving to about $34 or so.

The resistance levels in the $34 - $35 area are provided by:

  • The late-February 2020 high
  • The rising neck level of the previously completed head and shoulders pattern
  • The analogy to how big miners’ correction was in April (assuming that the mirror similarity continues)
  • The declining blue resistance line
  • The 50-day moving average

Additionally, please note that the last few local tops were accompanied by RSI at about 50. The latter is currently below 45, suggesting that this rally has more potential, but that it’s not particularly extreme.

The confirmation that the top is indeed in might come from the volume. Please note that the last three times when we saw really important tops, the GDX rallied on particularly strong volume. If we see something like that within the next 5 trading days or so (quite likely on Monday or close to it), we’ll have an even bigger chance of catching the reversal.

Consequently, the GDX is likely to form a top in the above-described area.

After breaking below the head-and-shoulders pattern, gold miners would then be likely to verify this breakdown by moving back up to the neck level of the pattern. Then, we would likely see another powerful slide – perhaps to at least $24.

This is especially the case since silver and mining stocks tend to decline particularly strongly if the stock market is declining as well. And while the exact timing of the market’s slide is not 100% clear, the day of reckoning for stocks is coming, and it might be very, very close.

As I explained previously, based on the similarities to the 1929 and 2008 declines, it could be the case that the precious metals sector declines for about three months after the general stock market tops. And it seems that we won’t have to wait long for the latter. In fact, the next big move lower in stocks might already be underway, as the mid-Feb. 2021 top could have been the final medium-term top.

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Disclaimer: All essays, research, and information found on the Website represent the analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong ...

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Erikas Ivan 1 month ago Member's comment

Thank you for providing exact and valuable service through your emails, Mr. Radomski. Spot on!

Przemyslaw Radomski, CFA 1 month ago Author's comment

Thank you!

Mar1kle 1 month ago Member's comment

Long term (Greater than 2 years...weekly chart), we bottomed in 2016. Medium term (Greater than 1 year...daily chart) we bottomed in Mar 2020. Short term (Less than 6 months 4 hour chart), we have not bottomed. Since Jan we have hit up against a well defined downward channel (shown on Daily and Hourly charts...days 1/29, 2/10, and 2/24), and have failed. Today that top part of channel sits at around 1800. The bottom part of the channel has been violated to the downside. Until we clear the upper line of this corrective channel we cannot say we have a short term bottom. The real question is what is the short term bottom price target and when will we get there. Options expiration next week has been a bloodbath this year for Gold. Short squeezes on highly shorted stocks seems to have also quietly picked up again (GameStop at 265). Options week will be interesting. Will Gold shorts panic and attempt to push the market down to get out of their highly leveraged short positions? I would not be long next week. As to a (short term) bottom.. I vote 61% retracement (measured from the 2018 lows to Jan 2021 High) around 1536. I think a major chunk of this will come next week. Then up from there

Przemyslaw Radomski, CFA 1 month ago Author's comment

Interesting point, thanks. I think we define short-term moves as something different. To me, a short-term move would be a weekly rally, for example - and I think we're more or less in the middle of one.

Carl Schwartz 1 month ago Member's comment

I think we bottomed.

Przemyslaw Radomski, CFA 1 month ago Author's comment

I think so too, but then again, I view this move as a counter-trend rally that would be likely followed by another move lower perhaps as early as next week.