It has become axiomatic, for good reason, that the mining shares tend to lead the gold price whether they are moving higher or moving lower. For whatever reason, the connection is fairly solid and has been for many years.
That being said, the combination of a deteriorating chart for the metal and the fact that the ratio ( HUI to Gold) is rolling over, does not bode well for gold at the moment.
Take a look at the following chart noting the HUI/Gold ratio and comparing that to the Gold price ( dark blue line). Can you see the very close connection? You can almost lay the gold price atop this ratio and see where it is generally headed as the lines follow each other quite closely.
It is pretty accurate with some brief exceptions. I have noted one of those within the ellipse area in late July the shares seemed to hold up a bit better than the overall gold price. Come August however, the relationship seems to have been restored.
The indicator below is tracking the movement generating both buy and sell signals on the metal based off the action of the shares. As you can see, it is currently in a bearish mode.
Here is a chart of the GDXJ or juniors. It failed to extend past 46 and now looks like it is heading back down to the bottom of a potential range near 34-33.
"Stick a fork in it - it's done!" is a common expression one hears down in Texas during Bar-B-Q season.
One could say the same thing about the Euro after the ECB slashed interest rates from 0.15% to a paltry 0.05%. I suppose the only thing left is to slash to absolute zero at this point and start handing out money to the general public.
Regardless, the Euro went "KERPLUNK" and the Dollar soared higher as the interest rate differentials between the two continue to be accentuated in the minds of forex traders.
Take a look at the Euro chart below. After a brief period of consolidation in early August, the currency has been careening lower, crashing through one layer of chart support after another.
If today's low near the 1.300 level fails to generate any buyers, another 200 point plunge to down near 1.2800 is not out of the question. The RSI is deeply oversold but when it comes to currencies, oversold or overbought rarely mean much if anything.
With the Eurozone economy sluggish at best ( and being hurt by sanctions imposed on Russia ), there is simply not much reason for traders to turn aggressive buyers of the common currency as the Central Bank is trying everything but its own version of QE at this point.
They have made the usual calls for banks to lend but what good does that do if not enough want to borrow? Negative interest rates to essentially punish banks for not lending seem to be foolish to me as it only encourages reckless lending to those not credit worthy and thus creates another entire set of problems in my view.
Meanwhile, the counterpart of the Euro, AKA, the Dollar, is soaring. Look at the weekly chart for some longer term perspective.
The USDX has gained 5.5% since early May of this year and is currently working back to the top side of a more than two year long range trade. There is some light resistance near 84 with more formidable resistance near 85. If the Dollar breaks through both levels, one would have to say that a run to 88-89 is not out of the question.
The Daily chart shows a powerful uptrend underway. Simply put, it has become a matter of dueling economic performances. Traders are looking at the relative performance of the various nations/zones whose currencies comprise the USDX and compared those to that of the US and are voting in favor of the US.
This strength in the Dollar also tends to depress commodity prices in general. One thing that concerns me is that we are getting a surge higher in the Dollar at exactly the same time we are getting more and more confirmation of a bumper corn and bean crop. As a rising Dollar makes US grain/beans more expensive on the global market against our competition, prices may have to take into account the higher Dollar. Translation - foreign buyers of US grain may be waiting for prices to fall yet further than they otherwise would have to help offset the stronger greenback.
One last thing- this rise in the US Dollar is not going to make it any easier for gold to rise in price. In foreign currency terms, gold is doing okay, especially Eurogold but as said before here many times, it is geopolitical events supporting the metal.
As far as Europeans are concerned, an interest rate environment such as the ECB is creating, is a two-edged sword. On the one hand, it lowers the opportunity cost of holding gold since bonds there pay next to nothing and thus incentivizes ownership of gold. On the other hand, the stronger Dollar ( via weaker Euro) raises the price of the metal and thus makes it more expensive to buy and own.
That is why one must view the chart to gauge which view will dominate. If Eurogold takes out the psychological and technical resistance level of 1000, then maybe we have something. For now, it is range bound.
