Gold miners completed the inverse head-and-shoulders pattern – it’s now a fact. And many analysts would have one believe that it’s the only fact that matters right now or that it’s of major importance. But just like focusing on one tree can make one miss the entire forest behind it, the above could make the entire precious metals outlook appear different than it really is. There are multiple factors in place and we will not cover all of them in this essay, but even in case of the mining stocks, there are many factors that gold promoters and those who put a lot of weight in the inverse H&S pattern in mining stocks, are usually not mentioning in their analyses. We’ll discuss some of those factors below.
Let’s start with the long-term chart featuring gold stocks’ proxy – the HUI Index (charts courtesy of http://stockcharts.com).
Broad Perspective – Big Implications
From the long-term point of view, we see that the gold miners have not moved above the 2016 lows, which means that the current situation remains similar to what we saw in April 2013 before the decline. Back then the corrective upswing was smaller, but it also took miners higher, yet not to the previous major bottom, let alone above it.
Based on Monday’s reversal, it seems that the next short-term move will be lower. This, in turn, means that that the very bearish link to 2013 is likely to be preserved and the very bearish implications for the following weeks will remain in place.
When looking at miners’ performance relative to the general stock market we also see bearish indications from both: short- and long-term point of view:
Gold Stocks vs. Other Stocks
From the long-term point of view, we see that the ratio between gold stocks and other stocks (S&P 500) moved to the declining resistance line, which is a good reason for a reversal.
