2022.06.17 18:45

If history is any guide, either a big or an enormous decline awaits gold stock prices. That’s very bearish for the precious metals market.

Here Comes the Replay

HUI Daily Chart

The situation in the gold stock to gold ratio is similar to what we saw in late 2012 and early 2013. The ARCA Gold BUGS to gold ratio invalidated its first attempt to break lower (marked with red, dashed lines), but after a corrective upswing, it then broke lower more decisively. That’s what I marked using black dashed lines.

If history is to rhyme, we will see a profound decline.

Also, please note that the pattern that we currently see, which started in early 2016, is somewhat similar to what happened between 2003 and 2008.

Back in 2008, the breakdown from the consolidation resulted in sharply lower ratio values and much lower prices of gold stocks.

So, if the situation is analogous to 2012-2013, we’re likely to see a big decline in the following weeks/months, and if it’s analogous to 2008, we’re likely to see an enormous decline in the following weeks/months.

Declining stock prices would only add fuel to the bearish fire (after all, gold stocks are… stocks), and that’s exactly what’s likely to happen.

The Bearish Outlook for Precious Metals

The technical picture in the case of world stocks remains extremely bearish, and my previous comments on it were just confirmed. Here’s what I’ve been writing about the above chart for quite a few weeks now:

For context, I explained the ominous implications on Nov. 30. I wrote:

Let’s take a look at the U.S. stock market.

S&P 500 Daily Chart

Stocks verified their breakdown below the Q1 2022 low, and then they declined. They broke below the May low, and they corrected a bit after the rate hike announcement, but they didn’t invalidate the breakdown. This means that the breakdown is almost fully confirmed.

The S&P 500 is unlikely to fall below 3,700 this week due to specific positioning in the options market, but it may do so next week.

A weekly close below the May lows would be a very bearish indication for the following days and weeks, and as investors have more time to digest this critical information, their willingness to sell in the following week would likely grow.

* * * * *

Source