- The gold miners index (HUI) and gold mining ETFs (GDX, GDXJ) saw brief rallies but have resumed their downtrend, following a similar pattern from 2013. - Gold stocks have underperformed gold significantly, which preceded major declines in 2008, 2012, and 2013. This bearish divergence implies further downside for gold stocks. - The HUI completed a head-and-shoulders pattern, and its break below the neckline is a bearish signal consistent with analog years 2000, 2012-2013 where declines followed the "invalidation". This points to gold stocks bottoming near 2020 lows or testing 2016 lows. - Spikes in trading volume for G

1. Gold Miners: Last Of The Summer
Wine

2. Points To Be Covered Today:
• Precious Metals Tasted Some Success
• The Gold Miners Down An Ominous Path
• The GDX ETF And The GDXJ ETF
• Gold Stocks Three Biggest Declines
• The Bearish Implications Of Gold Stocks’
• Gold Stocks’ Underperformance Relative To
Gold

3. Precious Metals Tasted Some Success
• Autumn is just around the corner, and while the
precious metals tasted some success most recently, the
medium-term is still set for a downtrend.
• With Fed Chairman Jerome Powell sticking to his
dovish guns and U.S. nonfarm payrolls elongating the
central bank’s perceived taper timeline, gold, silver,
and mining stocks were extremely happy campers.
• However, with event-driven rallies much more
semblance than substance, I warned on Sep.7 that the
rollercoaster of emotions would likely end in tears.

4. The Gold Miners Down An Ominous
Path
• With the 2013 analogue leading the gold
miners down an ominous path, the HUI Index
and the GDX ETF have rallied by roughly 8%
off their recent lows.
• However, identical developments occurred in
2013, and neither bout of optimism invalided
their bearish medium-term outlooks.

5. The GDX ETF And The GDXJ ETF
• And after the GDX ETF and the GDXJ ETF (our
profitable short position) plunged by 5.35%
and 6.98% respectively last week,
summertime sadness confronted the precious
metals.
• Likewise, with more melancholy moves likely
to materialize over the medium term, gold,
silver, and mining stocks should hit lower lows
during the autumn months.

6. The HUI Index Also Plunged
• To explain, the HUI Index also plunged by
nearly 6% last week, and the reversal of the
previous corrective upswing mirrors its
behavior from 2013.
• In addition, with its stochastic oscillator and
its RSI (Relative Strength Index) also a spitting
image, an ominous re-enactment of 2013
implies significantly lower prices over the
medium term.

7. Gold Stocks Three Biggest Declines

8. The HUI Index
• What’s more, the vertical, dashed lines above demonstrate
how the HUI Index is following its 2012-2013 playbook.
• For example, after a slight buy signal from the stochastic
indicator in 2012, the short-term pause was followed by
another sharp drawdown.
• For context, 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.

9. The HUI Index - I
• Thus, the HUI Index is quite likely to decline to
its 200-week moving average (or so) before
pausing and recording a corrective upswing.
• That’s close to the 220 level.
• Thereafter, the index will likely continue its
bearish journey and record a final medium-
term low some time in December.

10. Gold Is Almost Right In The Middle
• Furthermore, I warned previously that the miners’
drastic underperformance of gold was an
extremely bearish sign.
• There were several weeks when gold rallied
visibly and the HUI Index actually declined
modestly.
• And now, gold stocks are trading close to their
previous 2021 lows, while gold is almost right in
the middle between its yearly high and its yearly
low.

11. The Bearish Implications Of Gold
Stocks’
• And why is this so important? Well, because the bearish
implications of gold stocks’ extreme underperformance
still remain intact.
• Let’s keep in mind that the drastic underperformance of
the HUI Index also preceded the bloodbath in 2008 as
well as in 2012 and 2013.
• To explain, right before the huge slide in late
September and early October 2008, gold was still
moving to new intraday highs; the HUI Index was
ignoring that, and then it declined despite gold’s rally.

12. Gold Stocks’ Underperformance
Relative To Gold
• However, it was also the case that the general stock market
suffered materially.
• If stocks didn’t decline so profoundly back then, gold stocks’
underperformance relative to gold would have likely been
present but more moderate.
• Nonetheless, broad 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.

13. Three Of The Biggest Declines In
The Gold Mining Stocks
• 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.
• As a reminder, the HUI Index recently
completed the same formation.

14. The HUI Index Moved Back
• Yes, the HUI Index moved back below the previous
lows and the neck level of the formation, which –
at face value – means that the formation was
invalidated, but we saw a similar “invalidation” in
2000 and in 2013.
• And then, the decline followed anyway.
Consequently, I don’t think that taking the recent
move higher at its face value is appropriate.
• It seems to me that the analogies to the very
similar situation from the past are more
important.

15. 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.

16. The GDX ETF & GDXJ ETF
• For even more confirmation, let’s compare the
behavior of the GDX ETF and the GDXJ ETF.
• Regarding the former, investors rejected the
senior miners (GDX) attempt to recapture their
50-day moving average and the failure was
perfectly in tune with what I wrote on Sep. 7
• Large spikes in daily volume are often bearish,
not bullish.

17. The GDX ETF & GDXJ ETF - I
• To explain, three of the last four volume
outliers preceded an immediate top (or near)
for the GDX ETF, while the one that preceded
the late July rally was soon followed by the
GDX ETF’s 2020 peak.
• Thus, when investors go ‘all in,’ material
declines often follow. And with that, spike-high
volume during the GDX ETF’s upswings often
presents us with great shorting opportunities.

18. Target Based On Head & Shoulder
Formation

19. Bearish Head & Shoulders Pattern
• Even more bearish, not only did last week’s
plunge usher the GDX ETF back below the
neckline of its bearish head & shoulders
pattern (the horizontal red line on the right
side of the chart above)
• But the sell signal from the stochastic
oscillator remains firmly intact.
• As a result, ominous clouds continue to form.

20. Gold Miners: Last Of The Summer
Wine

21. Thanks for listening
Gold Miners: Last Of The Summer
Wine