June 29, 2020, 8:17 AM
The second wave of Covid-19 is here and while it makes gold's potential even better in the long run, it's likely to mean a sharp decline beforehand.
It might be tempting to focus on something else, to look the other way, or to limit testing, but the difficult fact is that the Covid-19 pandemic is developing after a several-week-long pause. There are new highs in the number of new daily cases both: globally, and in the U.S.
The second wave is not yet present in Europe, but please keep in mind that it could become a severe problem very fast. As the entire world has more and more coronavirus cases, and the economies are being reopened, it will be very hard to avoid the second wave in Europe.
The new daily cases in Israel clearly show how a supposedly contained situation can easily get much worse in a relatively short period.
Why is this important from the gold investment and gold trading point of view? Because the markets appear to have viewed the March price moves as a one-time event triggered by also a one-time event. And the markets are just starting to wake up to the fact that it doesn't work this way at all.
The number of searches for the "coronavirus cases" phrase in the U.S. is on the rise again, but it's not yet significantly higher than what we saw in mid-March. People are not yet panicking once again, but the trend is already in place.
The re-opening schedules are being canceled and some small lockdown measures are being introduced but their extent is not yet significant. People are already starting to get that they were way too optimistic regarding the recovery, but we are early in this process. The above search chart from Google Trends indicates that and performance of the general stock market confirms it.
The huge volume on which the S&P 500 reversed on Friday was likely an indication of the change in the market sentiment, which is still remarkably positive compared to what's going on. It's as if we were not in the early part of the biggest economic disaster of the last several decades.
It seems that the markets will soon catch up to the (unfortunately - grim) reality and decline much more. In the early part of the move, the precious metals market is likely to decline, just like it had declined in the first half of March. It's likely to then rally more profoundly, and soar well above the 2011 highs, but it's unlikely to happen without a slide first.
The situation in the USD Index continues to support the bearish case in the next 1-3 weeks, but at the same time it also explains why gold hasn't plunge just yet.
From the short-term point of view, the situation in the USD Index was very similar to what we saw in early March. At this time, it's clear that it's not 100% similar, but that there's a significant difference when it comes to timing and volatility. The situation is now developing less dynamically, as the authorities are reluctant to impose new lockdown measures, knowing how big declines in stocks followed, and gold was reacting primarily to the economic changes - people ran for the hills and then craved the safety of the U.S. dollar - at least initially. Right now, the situation is not yet critical in people's view, which is most likely why the USD Index is moving up in a steady manner instead of moving up sharply.
What is key here is that the situation can change quickly, just as it changed in March. Now the states are looking at each other and nobody wants to be the first to seriously limit the economic activity let alone force people to stay home. But as the cases grow to new highs, and as the number of deaths grow, people will likely get scared once again, and the more severe lockdown measures are likely to be re-introduced. That's when the USDX would be likely to soar with vengeance, and gold would be likely to slide - at least initially.
Technically, the USD index didn't manage to break above its mid-June highs and instead it reversed on both: Thursday and Friday. Consequently, many traders are likely viewing the June rally as a zigzag - a correction within a decline. We disagree with this interpretation, because of the favorable long-term chart, the similarity to what happened in February and March, and the way in which the new Covid-19 cases are growing in the U.S..
Summing up, the precious metals market is likely to decline in the short term (and only in the short term! gold is likely to soar in the following months!) along with the big decline in the stock prices and the decisive upswing in the USD Index. This is quite likely to correspond to renewed lockdown orders, which are just starting to emerge. Given how quickly the pandemic is developing, the above actions and price moves are likely just around the corner.
Today's flagship Gold & Silver Trading Alert includes multiple details, but most importantly, it includes the clear discussion of what will be the sign telling one that gold's move lower is almost certainly completely over. That's the detail, we think you might enjoy, want, and need right now.
June 22, 2020, 8:56 AM
Historical precedents are in many a technician's toolbox - and it's a tool they reach for with success repeatedly. Does the yellow metal offer any interesting parallels?
Gold had declined and it recovered, but the above simply prolongs the 2008-2020 analogy; it doesn't invalidate it. Today, gold is attempting to break above the previous highs, but it's not being successful in that.
Gold topped about a dollar below the May high and just like it was the case in May, and in April, gold quickly moved down from these levels. Gold futures are at $1,756 at the moment of writing these words, which means that gold invalidated the small breakout above the declining resistance line that's based on the April and May highs.
This is a bearish sign pointing to the repeat of the pattern - gold is likely to once again decline from the current levels to at least $1,680 or so. The emphasis here goes on "at least" as given the bearish support from the media (spreading the coronavirus fear) and the short-term breakout in the USD Index.
The resistance line, above which gold tried to break and the rising support line based on the March and June lows cross more or less in the first days of July. The triangle-vertex-based reversals have pointed to many important tops and bottoms in the recent weeks and months, so perhaps the above-mentioned target date will be the date when gold finally bottoms. If gold slides from here this week, the above will become the most likely outcome.
Speaking of target dates, there's also another very important target date, which is likely to translate into an important reversal.
It's more or less right now, and the technique that is applied here is gold's long-term turning point.
Until the 2011 top, these turning points were tops, and after the 2011 top - in each case - these turning points corresponded to major bottoms. We marked them with vertical, solid, gray lines.
The above means that the upcoming turning point had a slightly bigger chance of being a local bottom, but the most important thing is that there is likely to be some kind of extreme regardless of what type of extreme it is (that's the key difference between turning points and cycles - the latter have tops and bottoms after each other, while turning points could work in either way).
This means that what we saw earlier today might have been much more than just a temporary attempt to move higher. It might have been a major long-term top after which gold is going to slide in a profound manner.
Since the slide in gold is not likely to take long, but rather be relatively quick (similar to what we saw in March, and similar to the final slide that we saw in 2008), it could be the case that both the major top, and the major bottom will be close to the turning point. That's exactly what happened in 2011, which was also the only time when gold was trading above $1,500 during the turning point.
Back then, gold plunged almost $400 in less than a month. Since this kind of decline followed somewhat similar technical development, it's not out of the question that a big and sharp move could happen also in the following 1-3 weeks.
The above also suggests that our "crazy downside targets" are not so crazy after all.
Cup and Handle in Progress?
Naturally, the long-term outlook remains extremely bullish, especially given the possibility of seeing a cup-and-handle formation in gold. The 2011 - now price movement could indeed be the "cup". Generally, the bigger, more symmetrical, and rounder the "cup" is, the more profound and more bullish the implications are.
There is, however, something that's missing from the pattern... We have the cup, but we're missing the handle!
The decline in gold which we wrote about previously would serve as the perfect handle for the massive cup that gold formed in the previous nine years. That's in perfect tune with what we've been expecting for gold anyway - we have been expecting one final slide before the move to new highs, and we would like to stress that getting it would not invalidate the long-term bullishness at all. Conversely, it would confirm it through the cup-and-handle pattern.
Today's Gold Investment Update is based on the flagship Gold & Silver Trading Alert, and includes multiple details, but most importantly, it includes the clear discussion of what will be the sign telling one that gold's move lower is almost certainly completely over. That's the detail, we think you might enjoy, want, and need right now.
June 15, 2020, 8:11 AM
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June 8, 2020, 9:36 AM
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June 1, 2020, 7:47 AM
There is a laser-precision technique that tells us whether the precious metals market is going to move higher or lower, and it could take form of a confirmation or invalidation of a major breakout. We just had the make-or-break situation in gold mining stocks, and previously described the HUI Index - flagship proxy for the gold miners - in the following way:
The HUI Index declined significantly, and then it rebounded significantly.
Both are likely linked. Miners first declined more sharply than they did in 2008, so the rebound was also sharper. Based on the stimulus and gold reaching new yearly highs, miners also rallied, and tried to move to new yearly highs. It's not surprising.
However, if the general stock market is going to decline significantly one more time, and so will gold - and as you have read above, it is very likely - then miners are likely to slide once again as well. This would be in tune with what happened in 2008.
At this time, it may seem impossible or ridiculous that miners could slide below their 2015 lows, but that's exactly what could take place in the following weeks. With gold below their recent lows and the general stock market at new lows, we would be surprised not to see miners even below their 2020 lows. And once they break below those, their next strong resistance is at the 2016 low. However, please note that miners didn't bottom at their previous lows in 2008 - they moved slightly lower before soaring back up.
Please note that the HUI Index just moved to its 2016 high which serves as a very strong resistance. Given the likelihood of a very short-term (1-2 days?) upswing in stocks and perhaps also in gold (to a rather small extent, but still), it could be the case that gold miners attempt to rally above their 2016 high and... Spectacularly fail, invalidating the move. This would be a great way to start the next huge move lower.
And what happened last week?
The HUI Index invalidated the breakout above its 2016 high in terms of the weekly closing prices and also in terms of the monthly closing prices.
This is a perfectly bearish sign, especially since the HUI Index has been forming an extremely clear monthly shooting star candlestick. This is a clear formation with clear implications - gold miners are likely to decline in June.
It's important to note that on a daily basis, miners have barely moved higher on Friday. They had a good reason to do so - even two reasons. Both: general stock market and - most importantly - gold / GLD moved higher so miners should have rallied as well. They didn't, which shows that they are much more likely to decline in the short term instead.
Combining two key gold trading tips: silver's exceptional strength with miners' exceptional weakness provides us with a great trading opportunity.
Thank you for reading today's free analysis. Please note that it's just a small fraction of today's full Gold Investment Update.. The latter includes multiple details, but most importantly, it includes the clear discussion of what will be the sign telling one that gold's move lower is almost certainly completely over. That's the detail, we think you might enjoy, want, and need right now.