Gold: Will it be on a date with a new collapse?
Przemyslaw Radomski, CFA
Print a lot of money. Excessive debt. And gold failed to maintain its gains. But that’s what happened in the markets, no matter what the gold-biased bulls say.
Gold fell yesterday. The apparent reason? US retail sales beat expectations.
the real reason? Sharp downtrend.
On the gold chart above, I added annotations explaining what happened in three previous instances after the release of retail sales reports. We can see the following:
Gold falls after disappointing retail sales in June
Gold rose after better-than-expected retail sales in July
Gold paused gains after retail sales disappointed in August
Gold fell after retail sales rose in September
What do we conclude from that?
There is no clear link (and perhaps no link at all) between US retail sales and the price of gold. If gold only fell due to higher retail sales, it surely should have gone up based on disappointing retail sales in June, right? But it fell.
For weeks, months, and years, I’ve been writing that markets don’t need a catalyst to move in a particular direction. Having a catalyst can speed things up, and markets may go up or down on any small piece of news, provided the markets really “want” it. And when I say “wanting” the markets to move in a certain way, I mean the fact that markets move in trends and cycles, and even if a particular market has a very favorable fundamental situation in the long term, it does not mean that it will not decline in the short or medium term. This is how the markets work, and this has been the case for decades, no matter what gold traders may tell you.
Let’s face it, if monetary authorities around the world print huge amounts of money, stagflation is likely to be the expected result, and gold is very likely to rise accordingly in the following years, just as it did in the 1970s.
This is already the situation – a lot of money has already been printed, and the world has been suffering from the epidemic for more than a year. So gold should rise in this environment! Silver must be high! And gold stocks should go up, too!
whats the truth?
Gold failed to sustain gains above its 2011 highs. Can you imagine that? Print a lot of money. Excessive debt. Even during a pandemic! Gold still fails to sustain gains above its 2011 highs. If all this does not make you doubt the veracity of the medium-term bullish narrative in the precious metals sector, consider the following:
Silver – in a better fundamental position than gold – was not even close to its 2011 highs (~50). The shortest I got was the short rally above $30. Now that more money is being printed, silver is at its lowest near $ 20 .
What about the shares of gold companies? Gold stocks haven’t risen above their 2011 highs, nor were they even close to them. Nor has it risen above its highs in 2008. In fact, the HUI – the main index of gold stocks – is trading below its 2003 high! This is at nominal prices. And the real prices are lower. Just imagine how weak the precious metals sector would be if that part of the sector that is supposed to rise first (that’s what we usually see at the start of major rallies) underperforms in such a ridiculous way.
And this is just the beginning of the decline in the shares of mining companies.
There is more on the way!
HUI indicator chart
The breakout of the broad head and shoulders pattern (highlighted in green) down has been verified. The previous three similar patterns (also marked in green) were followed by big dips, and I matched those moves to the current situation (marked with dashed lines). This simple measurement tells us that the HUI could slide into the 100-150 range, which means it could dip to its lowest level in early 2016.
Could that really happen? With the precious metals market as weak as it is now (from a medium-term, not long-term point of view) – of course it can.
For the short term, please take a look at what silver just did.
Silver fell and reached new minimum closing levels in 2021. In fact, last August, silver’s intraday low was lower, but it did not close at the lowest level. This is a major confirmation of the bearish price expectations for silver.