Gold stocks have lost much of their vigor recently as the price of gold has fallen. The HUI index, a measure of gold stock performance, plunged over 10% last week and may fall further based on historical patterns. Gold stocks completely ignored gold's gains in recent weeks, showing extreme weakness. Two bearish scenarios are possible - gold stocks may bottom near their 2020 highs or could retest their 2016 lows if the broader market sees a sharp decline. In the short term, more declines for gold and gold stocks are expected, though they remain poised to perform well in the long run once secular bull markets resume.

1. Gold Stocks Lost All Their Vigor

2. Points To Be Covered Today:
• Have Gold Stocks Lost All Their Vigor?
• Gold Continuous Contact
• Gold Stocks Completely Ignored Gold’s Gains
• GDX ETF’s
• Gold Price & Chart

3. Have Gold Stocks Lost All Their Vigor
• Gold sank profoundly on Jun. 17, taking its crew along. While it has the strength
to go up for one more breath, other PM assets may not be that tough.
• The Gold Miners
• While investors believed that superficial strength indicated clear skies ahead, I
warned on Jun14 that storm clouds were likely to rain on gold, silver and mining
stocks’ parade.
• Not only has gold’s RSI fallen precipitously, but the yellow metal’s stochastic
oscillator is also at levels that preceded significant historical drawdowns. As a
result, while a $100+ decline is likely to materialize in the short term, an even
larger decline will likely occur over the medium term.
• And with the 2008 and 2012-2013 analogues becoming even more valid by the
day, gold’s ominous path forward will likely catch many market participants by
surprise.
• And with the technical realities finally drowning the yellow metal, it was a tough
pill to swallow for those that didn’t heed the warning.

4. Gold Continuous Contact

5. HUI Index Plunged By More Than 10%
Last Week
• On top of that, even though the HUI Index plunged by more than
10% last week, the carnage may not be over.
• Case in point: the HUI Index is in the midst of forming the right
shoulder of its bearish head & shoulders pattern, and if completed,
could result in a profound decline over the medium term.
• For context, with gold approaching its late-April bottom and its rising
medium-term support line, the yellow metal could bounce at roughly
$1,750.
• In the process, the gold miners may follow suit. However, the bearish
implications remain intact over the medium term, and a significant
slide is likely to follow.

6. HUI Index Plunged By More Than 10%
Last Week - I

7. HUI Index Plunged By More Than 10%
Last Week - II
• To explain, if you held firm in 2008 and 2013 and maintained your
short positions, you almost certainly realized substantial profits.
• And while there are instances when it’s wise to exit one’s short
positions and re-enter at more attractive prices, the smooth declines
of gold, silver, and mining stocks mean that the risk-reward of doing
so is tilted toward the downside.
• Or to put it more bluntly, the prospect of missing out on the
forthcoming slide makes exiting the short positions a risky
investment decision.
• For context, we believe that holding the short position is the most
prudent course of action. However, if gold, silver and mining stocks
become extremely oversold, we may consider covering on a short-
term basis.

8. Gold Stocks Completely Ignored
Gold’s Gains
• What happened three weeks ago was that gold rallied by almost $30
($28.60) and at the same time, the HUI – a flagship proxy for 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.
• To that point, the HUI Index is still following two medium-term historical
analogies.
• To explain, back in 2008, right before a huge slide, in late September and
early October gold was still moving to new intraday highs, but 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 declined then.
If stocks hadn’t declined back then so profoundly, gold stocks’
underperformance relative to gold would likely be present but more
moderate.

9. Forecasting Lower Gold Prices
• Moreover, in 2012, the HUI Index topped on Sep. 21, and that was just the
initial high in gold.
• At that time the S&P 500 was moving back and forth with lower highs – so
a bit more bearish than the current back-and-forth movement in this stock
index. And what was the eventual climax? Well, gold moved to new highs
and formed the final top (Oct. 5).
• It was when the S&P 500 almost (!) moved to new highs, and despite both,
the HUI Index didn’t move to new highs. Thus, the similarity to how the
final counter-trend rally ended in 2012 (and to a smaller extent in 2008)
ended is uncanny.
• On top of that, the stochastic oscillator (which flashed a clear sell signal)
is singing a similar tune.
• Not only do these signals often precede massive price declines on their
own, but the analogies of 2008 and 2012 serve as confirmation that the
huge decline has only just begun and that forecasting lower gold prices is
currently justified.

10. HUI Index Retraced
• Thus, if history rhymes, as it tends to, the HUI Index will likely
decline profoundly and find medium-term support 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 it seems unthinkable.
• 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.
• Now, 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.

11. HUI Index Retraced - I
• And that’s exactly what we saw (a move above 320 is still close to
300 from the long-term point of view).
• To clarify, one head-and-shoulders pattern – with a rising neckline –
was already completed, and one head-and-shoulders pattern – with
a horizontal neckline – is being completed, but we’ll have the
confirmation once miners break to new yearly lows.
• Furthermore, three of the biggest declines in the 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.

12. Two Bearish Scenarios
• As a result, we’re confronted with two bearish
scenarios:
1.If things develop as they did in 2000 and 2012-2013,
gold stocks are likely to bottom close to their early 2020
high.
2.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.

13. Two Bearish Scenarios - I
• Keep in mind though: scenario #2 most likely
requires equities to participate.
• In 2008 and 2020, the sharp drawdowns in the HUI
Index coincided with significant drawdowns of the S&P
500.
• However, with the Fed turning hawkish and investors
extremely allergic to higher interest rates, the likelihood
of a three-peat remains relatively high.

14. Gold Miners ETF NYSE

15. Gold Miners
• The senior miners’ weekly decline occurred relatively
uninterrupted, with little buying pressure witnessed on Jun18.
• Moreover, not only did the GDX ETF close below its April lows
and its March highs, but it also dipped below the 61.8%
Fibonacci retracement level.
• Thus, while the senior miners’ RSI (Relative Strength Index)
signals a buying opportunity (by falling below 30), the technical
damage (breakdown below the 61.8% Fibonacci retracement)
justifies the bearish outlook even in the short run. Of course, I
remain on the lookout for this breakdown’s invalidation as it
would be a sign of potential strength.

16. GDX ETF’s
• Let’s consider the size of the possible corrective upswing
based on the analogy to 2012.
• Back then, the GDX ETF’s corrective upswing didn’t recapture
61.8% or even 38.2% of its previous decline, and the bullish
correction was rather “muted” relative to gold.
• Thus, the notable detail here is that the GDX ETF started its
November 2012 correction with the RSI close to 30, but also
when it moved slightly below its previous (August) lows, and the
final short-term bottom took place after the second (!) day when
it declined on big volume.

17. Gold Miners ETF NYSE - I

18. Gold, Silver, And Mining Stocks Are
Poised To Shine In The Long Run
• So, if history is going to continue to rhyme (which seems likely), even if gold
corrects quite visibly, gold stocks’ corrective upswing might not be that significant.
• If we see “screaming short-term buy signals” or something like that, we might
close or even briefly switch to the long side, but for now, the trend remains down.
• In conclusion, gold, silver and mining stocks’ plight was a humbling experience
for many investors.
• And while the recent slide highlights the importance of investing without emotion,
we remain confident that the precious metals will soar once again.
• However, because secular bull markets don’t occur in a straight line, based on
the similarity to how similar situations developed in the past, a final profound
decline will likely occur before the metals resume their resurgence.
• As a result, even though gold, silver, and mining stocks are poised to shine in the
long run, I still think that short positions in the precious metals sector – especially
in the junior miners – currently remain attractive from a risk-reward perspective.

19. Gold Price & Chart

20. Gold Stocks Lost All Their Vigor

21. THANKS FOR LISTENING
Gold StocksLost All TheirVigor