In this week’s very long-term HUI index
chart (a proxy for the gold stocks) we see that miners finally moved close to
the upper border of the declining trend channel. Soon after that, they declined
once again (it happened yesterday) and could be that the correction to the
upside is already behind us.
trend remains down, and another decline is likely before the final bottom is
Where will it form? In our opinion, close
to or slightly above the 2008 low as indicated in the above chart by the red
ellipse (which also includes the 61.8%
Fibonacci retracement level).
Once we know the current situation in the
HUI index let’s take a look at the GDX ETF chart. Does it confirm the bearish
In this medium-term GDX ETF chart, we
continue to see an analogy to the previous price patterns. The corrective ABC or
zig-zag price pattern was previously followed by a period of declines. On each
occasion, the GDX ETF did not move to the 50% Fibonacci retracement level. It
declined after getting to or slightly above the 38.2% level. This same type of
move was seen on Wednesday, and prices then declined. They seem ready to decline
Furthermore, the volume levels on
Wednesday being significant on a move to the downside suggest that it may be the
start of bigger declines. The RSI level is close to 50, a level previously seen
when the miners formed a local top.
In the past, sharp declines were not seen
immediately after local tops. Moderate moves to the downside were seen initially
and then – after a few days of moderate declines – we saw a period of
Before we summarize, we would like to
present you two interesting ratios: the gold-stocks-to-gold ratio and
the ratio of the HUI Gold Bugs Index to the S&P
Let’s start with
the HUI-to-gold ratio. After all, gold stocks used to
lead gold both higher and lower for years.
In the gold-stocks-to-gold ratio chart, we
didn’t see a real improvement in the situation this week. Although the
HUI-to-gold ratio moved higher on Tuesday, this move was barely visible from the
long-term perspective. That was just a blip on the radar screen, just like when
miners rallied relative to gold in the previous months.
Besides, when we look at the above chart,
we clearly see that the HUI:gold ratio remains below the 50-day moving average,
a level which has served as approximate resistance for the past month.
Therefore, in our view the downtrend is
still valid and the implications remain bearish.
Now, let’s find
out how the HUI is doing
compared to the stock markets.
In this very long-term
gold-stocks-to-other-stocks ratio we have seen a breakdown below the important
support level created by the bottoms of 2005 and 2008. The ratio has been
clearly below this level for several weeks now so the breakdown is confirmed.
The next support line is all the way down
at the 0.1 level so it seems that further significant declines are likely before
the final bottom is reached here. This target level is created by (applying
Fibonacci techniques) extrapolating previous declines by the Fibonacci
the Phi number (1.618) . It coincides with the local bottom seen in the
middle of 2002.
This chart confirms what we’ve seen in
other charts: the bottom is not in yet, another big drop is likely ahead, but
the majority of the declines are probably behind us.
the outlook for mining stocks remains bearish. Miners are still in a downtrend
and it seems that the next move lower will probably be the one to take miners to
their final bottom.
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Thank you for reading.
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Gold & Silver Investment &
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