Gold: The General Left Alone

1. Gold: The General Left
Alone

2. Points To Be Covered Today:
• The Gold Miners
• The Bearish Underperformance
• Index Moved Slightly Higher
• The HUI’s Rally
• Gold Rallied By Almost $30
• Gold Was Still Moving To New Intraday Highs
• GDX ETF And The GDXJ ETF
• Wave the Flag! The Bear Flag!

3. The Gold Miners
• While gold shrugged off the Aug. 8 ‘flash crash’ and
bounced back above its June lows.
• The yellow metal’s renewed sense of swagger hasn’t
been mimicked by its precious metals peers.
• For example, while gold ended the week up by 0.86%,
the GDXJ ETF (our short position) ended the week
down by 1.72%.

4. The Gold Miners - I

5. The Bearish Underperformance
• Furthermore, while gold jumped by roughly $15 last
week, the HUI Index declined by five index points.
• And with the bearish underperformance often a
precursor to profound medium-term drawdowns.
• The precious metals are behaving like its 2012-2013.
• Last week is yet another confirmation of the analogy.

6. Index Moved Slightly Higher
• Case in point: after the HUI Index recorded a short-term buy
signal in late 2012.
• When the index’s stochastic indicator was already below the 20
level (around 10) and the index was in the process of forming
the right shoulder of a huge, medium-term head-and-shoulders
pattern.
• The index moved slightly higher, consolidated, and then fell off
a cliff.

7. Index Moved Slightly Higher - I

8. The HUI’s Rally
• To explain, can you see the HUI’s rally at the end of 2012 that
followed a small buy signal from the stochastic indicator?
• I marked it with a purple, dashed line. No?
• That’s because it’s been practically nonexistent.
• The HUI Index moved higher by so little that it’s impossible to
see it from the long-term point of view.
• On top of that, with the shape of gold’s recent price action, its
RSI, and its MACD indicators all mirroring the bearish signals
that we witnessed back in December 2012, the current setup
signals that we’re likely headed for a similar swoon.

9. Gold Rallied By Almost $30
• For context, I warned previously that the miners’ drastic
underperformance of gold was an extremely bearish sign.
• Gold rallied by almost $30 ($28.60) and at the same time,
the HUI – a flagship proxy for the gold stocks… Declined by
1.37.
• In other words, gold stocks completely ignored gold’s
gains.
• That shows exceptional weakness on the weekly basis and
is a very bearish sign for the following weeks.

10. The Bearish Phenomenon
• And why is this quote so important? Well, because the bearish
phenomenon still remains intact.
• As mentioned, with gold rising by roughly $15 and the HUI Index declining
by about five index points, the bearish underperformance is accelerating.
• Precisely, something similar happened during the week beginning on July
6.
• The gold price rallied by $27.40, and the HUI Index declined by 1.39. As a
result, with the HUI Index’s ominous signals still present, if history rhymes
(as it tends to), medium-term support will likely materialize in the 100-to-
150 range.
• For context, high-end 2020 support implies a move back to 150, while
low-end 2015 support implies a move back to 100.
• And yes, it could really happen, even though such predictions seem
unthinkable.

11. Gold Was Still Moving To New Intraday Highs
• In addition, the drastic underperformance of the HUI Index also
preceded the bloodbath in 2008.
• To explain, right before the huge slide in late September and
early October, gold was still moving to new intraday highs; the
HUI Index was ignoring that, and then it declined despite gold’s
rally.
• However, it was also the case that the general stock market
suffered materially.
• If stocks didn’t decline back then so profoundly, gold stocks’
underperformance relative to gold would have likely been
present but more moderate.

12. Bearish Head & Shoulders Patterns
• Nonetheless, bearish head & shoulders patterns have often been
precursors to monumental collapses.
• For example, when the HUI Index retraced a bit more than 61.8% of
its downswing in 2008 and in between 50% and 61.8% of its
downswing in 2012 before eventually rolling over, in both (2008 and
2012) cases, the final top – the right shoulder – formed close to the
price where the left shoulder topped.
• And in early 2020, the left shoulder topped at 303.02.
• Thus, three of the biggest declines in the gold mining stocks (I’m
using the HUI Index as a proxy here) all started with broad, multi-
month head-and-shoulders patterns.
• And in all three cases, the size of the declines exceeded the size of
the head of the pattern.

13. HUI Index
• Furthermore, when the HUI Index peaked on Sep. 21, 2012,
that was just the initial high in gold.
• At that time, the S&P 500 was moving back and forth with lower
highs. And what was the eventual climax?
• Well, gold made a new high before peaking on Oct. 5. In
conjunction, the S&P 500 almost (!) moved to new highs, and
despite bullish tailwinds from both parties, the HUI Index didn’t
reach new heights.
• The bottom line? The similarity to how the final counter-trend
rally ended in 2012 (and to a smaller extent in 2008) remains
uncanny.

14. Two Bearish Scenarios
• As a result, we’re confronted with two bearish scenarios:
• If things develop as they did in 2000 and 2012-2013, gold
stocks are likely to bottom close to their early-2020 low.
• If things develop like in 2008 (which might be the case, given
the extremely high participation of the investment public in the
stock market and other markets), gold stocks could re-test (or
break slightly below) their 2016 low.
• In both cases, the forecast for silver, gold, and mining stocks is
extremely bearish for the next several months.

15. GDX ETF And The GDXJ ETF
• As further evidence, let’s compare the behavior of the
GDX ETF and the GDXJ ETF.
• Regarding the former, the senior miners (GDX) are in
the midst of forming an ominous bear flag and the
volume that accompanied Friday’s (Aug. 13)
• Corrective upswing was relatively weak and it declined
while the flag pattern was formed – just as it should if
the formation was valid.

16. The GDX ETF
• Conversely, the GDX ETF did invalidate the breakdown
below the neckline of its bearish H&S pattern (which is
a bullish sign). However, the GDXJ ETF did not.
• And with the junior miners’ initial plunge (the pole)
implying a continuation of the downtrend (following a
consolidation that forms the flag).
• There are more indicators weighing down the gold
miners than lifting them up.

17. The GDX ETF - I

18. Wave the Flag! The Bear Flag!
• Speaking of the GDXJ ETF, not only are the junior miners
lagging behind their senior counterparts, but the four-hour chart
provides a clear visual of the initial breakdown and the
formation of the current bear flag.
• The flag is perfect, and it took place on relatively declining
volume, suggesting that another move will also be to the
downside.
• After all, the moves that follow flags tend to be similar to the
ones that preceded them.

19. Wave the Flag! The Bear Flag! - I

20. Gold: The General Left
Alone

21. Thanks for listening
Gold: The General Left Alone