Gold didn’t do much Monday, but there was more than one thing happening that served as an additional bearish confirmation. The most important sign came from silver’s short-term outperformance.
As you can see on the above chart, gold formed a bearish reversal candlestick Monday, and it moved lower in Tuesday's pre-market trading. Since it moved to a new monthly low, it could be the case that yet another small corrective upswing was already over.
“Yet another,” as gold has been declining in a back-and-forth manner for a few weeks now. As I explained yesterday and in the previous weeks, this makes the current situation similar to what we saw previously—in 2013.
"Between September 2012 and February 2013, gold declined in a back-and-forth manner as well, and the current situation seems to be analogous to what we saw in February 2013. At the time, the final short-term upswing took gold to its 50-day moving average (marked with blue), and we saw something very similar recently. The recent high ($1788.40) was very close to gold’s 50-day moving average too – less than $10 from it."
Silver in the spotlight
However, as I wrote at the beginning of this analysis, the key bearish sign of Monday's session came from silver.
While gold ended Monday's session only 0.02% higher, silver ended it 1.20% higher. This means that silver outperformed gold on the Sept. 27. Silver’s short-term outperformance of gold was bearish, especially when accompanied by mining stocks’ weakness relative to gold.
While miners didn’t underperform gold on Monday, they did so on Friday. Thus, it’s fair to say that we saw a mix of those two important signs, and they together painted a bearish picture for the short run.
Despite the intraday rally, the GDX ended Monday's session completely unchanged.
And while gold and silver moved slightly higher, GDX did nothing, and the GDXJ ETF underperformed, just as it was likely to.
The VanEck Junior Gold Miners ETF (NYSE:GDXJ) declined by 0.1%. This may not be a lot, but the GDXJ was once again one of the weakest parts of the precious metals sector, which bodes well for our profitable short positions in the junior miners. The fact that this was the lowest close that we saw so far (!) this year adds to the bearish implications.
The USD Index
At time of writing, the USD Index was just a bit higher in Tuesday's pre-market trading, but it seemed that the next big run-up was at hand.
Why? Because the USDX has been consolidating above the inverse head and shoulders pattern breakout for a long time, and it’s relatively uncommon for the consolidations to take this long—let alone even longer.
And as the USD Index rallies, gold, silver, and mining stocks are likely to decline. Since they are weak even without USD’s help, the upcoming decline in the PMs and miners is likely to be profound.