2. Points To Be Covered Today:
• Gold Miners
• Senior Miners Even Corrected Before The End Of The Day
• Junior Miners (The GDXJ ETF)
• Gold Continuous Contract
• The USD Index
• Commitments of Traders (COT) - I
• The Euro Index’s
3. Gold Miners
• Yesterday’s (Jul. 26) session might have seemed to be something
important or game-changing, as miners moved higher. But it wasn’t.
• But miners moved higher while gold moved lower! Wasn’t that the
opposite of what you described as very bearish?
• It was, but the context was different. The magnitude and time frame
were different. The miners’ underperformance that I had described
took place over the previous weeks, and what happened yesterday
was limited to… well, yesterday.
• Consequently, miners’ strength seems to have just been a blip on the
radar screen – a tiny correction in the moves in prices and ratios that
have been taking place for many weeks.
• It didn’t change anything from the technical point of view either.
6. Junior Miners (The GDXJ ETF) - I
• Junior miners (the GDXJ ETF) didn’t invalidate the breakdown
below the neck level of the bearish head and shoulders
formation.
• Consequently, the very bearish implications of the
breakdown remain intact.
• While the last several days were relatively calm in the PMs and
in the USD Index.
• It seems that it’s not only the calm before the storm, but also
the final part thereof.
8. Gold Is About $2 Lower
• As I wrote earlier, gold didn’t do much yesterday – it moved
slightly lower.
• The same is taking place in today’s pre-market trading – gold is
about $2 lower.
• Basically, nothing changed, and gold is likely to move lower
based, i.a., on the self-similarity to what happened in 2012-2013
and 2008.
10. The USD Index - I
• The USDX moved a bit lower yesterday, but this move didn’t take it back
below the neck level of the previously broken inverse head-and-shoulders
formation.
• Consequently, the USDX is likely to soar in the following weeks, which is
likely to put very negative pressure on the PMs, almost (!) guaranteeing
that they will decline in consequence.
• Moreover, please note that the correlation between gold and the USD
Index (lower part of the above chart) is now moving back toward the 0
level after a long period of being close to -1.
• This might not seem interesting until one compares it to what happened in
gold when that was the case previously.
• In early September 2020, in mid-November 2020, and in mid-February
2021 we saw the same thing and that heralded short-term declines in
gold in all three cases. Thus, the implications are bearish.
11. The USD Index - II
• With investors putting the USD Index through a rigorous exam
last week (ending Jul. 23), months of study helped the
greenback pass the test with flying colors.
• Case in point: with the USD Index rising above the neckline of
its inverse (bullish) head & shoulders pattern, the head implies
a medium-term target of roughly 98.
• On top of that, with the USD Index’s textbook validation adding
to the bullish momentum last week – with the greenback
verifying its recent breakout and responding with further
strength – the U.S. dollar is likely to graduate with honors in the
coming months.
13. The USD Index – IV
• What’s more, the bullish breakout was further validated when the USD Index closed the
week above the neck level of its H&S pattern, and it’s difficult to imagine a more sanguine
sign for the U.S. dollar.
• Thus, with the greenback poised to move sharply higher in the coming weeks,
gold, silver and mining stocks are likely to head in the opposite direction.
• In addition, the USD Index often sizzles in the summer sun. To explain, major USDX
rallies often start during the middle of the year, and with the dollar’s bullish IQ often rising
with the temperature, gold, silver and mining stocks will likely feel the heat over the
medium term.
• If you analyze the chart below, you can see that summertime surges have been
mainstays on the USD Index’s historical record and double bottoms often signal the end
of major declines or ignite significant rallies.
• For example, in 2004, 2005, 2008, 2011, 2014 and 2018, a retest of the lows (or close to
them) occurred before the USD Index began its upward flights. In addition, back in 2008,
U.S. equities’ plight added even more wind to the USD Index’s sails. And if the general
stock market suffers another profound decline (along with gold miners and silver), a sharp
re-rating of the USDX is likely in the cards.
16. Commitments of Traders (COT)
• The latest Commitments of Traders (COT) report
shows that non-commercial (speculative) futures traders
have increased their long exposure to the U.S. dollar
(the light blue line below).
• More importantly, though, with longs bouncing off a
roughly 10-year low and the current positioning still well
below the highs set in previous years, the U.S. dollar
still has plenty of room to run.
18. The Euro Index’s
• The polar opposite of the USD Index, the Euro Index’s recent symmetrical
decline mirrors the drawdown that we witnessed in mid-2020.
• And while the breakdown below the neckline of its bearish head &
shoulders pattern still requires further verification, a continuation of the
trend could usher the index back to the June 2020 lows or even lower.
• For context, the EUR/USD accounts for nearly 58% of the movement of
the USD Index.
• In addition, when the Euro Index reached the neckline of its bearish H&S
pattern in early April 2021, late September 2020, and late October 2020, a
fierce rally ensued.
• However, this time around, the corrective upswing has been extremely
weak. As a result, with lower highs and lower lows plaguing the Euro Index
in recent weeks, it’s likely only a matter of time before the neckline officially
breaks.
