Should Gold Miners Hide From Approaching Dollar Wave?
2022.04.06 21:42
On the technical front, we saw that the VanEck Junior Gold Miners ETF (NYSE:GDXJ) – once again – moved higher in the first part of the session. Unlike Monday’s session, yesterday’s one was followed by a move well below the opening price. Ultimately, junior miners ended the day more than 3% lower.
GDXJ 240-Min Chart
In yesterday’s analysis, I wrote that junior miners were likely to decline, and they did.
However, why did junior miners rally initially? Perhaps for technical reasons. They were moving higher in their immediate-term trend, and thus, it might have been necessary for them to reach a resistance level before they could return to their downtrend. That’s likely the same reason why they rallied early in the day on Monday, but it seems that Monday’s session wasn’t convincing enough and the bulls wanted to give the breakout another shot. It failed too.
Junior miners just found the resistance in the form of the declining line based on the previous March highs. After a tiny attempt to break above this line, the GDXJ declined and the breakout was invalidated, suggesting that the rally is over.
However, for this to happen, junior miners would first need to confirm the breakout above the line, and we saw the opposite taking place yesterday – the breakout above the line was invalidated. Twice.
Gold Weekly Chart
Before we get to them, let’s check gold’s short-term chart.
Gold Daily Chart
In short, it’s consolidating, which is in perfect tune with what we saw after the previous (unsuccessful) attempt to break above $2,000 – in 2020. Back then, the volatility was bigger, but the pre-top rally itself was also much higher. Overall, it seems that both situations are analogous.
With the US dollar Index breaking to new highs, it seems that gold is ready to fall lower once again. Speaking of the U.S. currency, let’s take a look at its chart.
USD Daily Chart
Indeed – the USD Index has rallied, and it just moved to its new 2022 highs. What’s not visible on the above chart is that the rally continued in today’s pre-market movement. At the moment of writing these words, the USD Index futures are trading at about 99.7. Once the USD Index moves above 100, it will likely get media’s attention, which means that many more people will realize what’s going on.
What’s going on is that the USDX has been on the rise since early 2021 – when everyone (well, not you, if you’ve been following my analyses at that time) thought that the USD Index was about to collapse.
This renewed bullish sentiment is likely to keep precious metals prices in check and perhaps trigger another big wave down.
Meanwhile, the technical picture of the S&P 500 index continues to suggest that the final top and the initial corrective upswing are over.
It also closed yesterday’s session lower, indicating that another short-term rally is about to take place.
All in all, technicals favor a decline in the precious metals sector sooner rather than later.
