August 3, 2020, 9:35 AM
Nothing lasts forever, and the brightest flame burns itself out the fastest. That could very well apply to the current situation around PMs.
Speaking of indications pointing to the situation being excessive, let's take a look at the USD Index.
Remember when in early 2018 we wrote that the USD Index was bottoming due to a very powerful combination of support levels? Practically nobody wanted to read that as everyone "knew" that the USD Index is going to fall below 80. We were notified that people were hating on us in some blog comments for disclosing our opinion - that the USD Index was bottoming, and gold was topping. People were very unhappy with us writing that day after day, even though the USD Index refused to soar, and gold was not declining.
Well, it's the same right now.
The USD Index is at a powerful combination of support levels. One of them is the rising, long-term, black support line that's based on the 2011 and 2014 bottoms.
The other major, long-term factor is the proximity to the 92 level - that's when gold topped in 2004, 2005, and where it - approximately - bottomed in 2015, and 2016.
The USDX just moved to these profound support levels, and it's very oversold on a short-term basis. It all happened in the middle of the year, which is when the USDX formed major bottoms on many occasions. This makes a short-term rally here very likely.
We even saw a confirmation from USD's short-term chart.
The U.S. currency finally after a decisive short-term breakout. Back in March, the short-term breakout in the USD Index was the thing that triggered the powerful rally in it, as well as a powerful plunge in the precious metals market.
Consequently, based on this analogy, the implications for the near term are bearish for the PMs. Especially, when we consider the fact that Gold Miners Bullish Percent Index showed the highest possible overbought reading recently.
The excessive bullishness was present at the 2016 top as well and it didn't cause the situation to be any less bearish in reality. All markets periodically get ahead of themselves regardless of how bullish the long-term outlook really is. Then, they correct. If the upswing was significant, the correction is also quite often significant.
Please note that back in 2016, there was an additional quick upswing before the slide and this additional upswing has caused the Gold Miners Bullish Percent Index to move up once again for a few days. It then declined once again. We saw something similar also this time. In this case, this move up took the index once again to the 100 level, while in 2016 this wasn't the case. But still, the similarity remains present.
Back in 2016, when we saw this phenomenon, it was already after the top, and right before the big decline. Given the situation in the USD Index, it seems that we're seeing the same thing also this time.
On Friday, gold moved higher once again, but senior mining stocks refused to move to new highs. They didn't manage to even erase their Thursday's decline. The volume that accompanied this daily upswing was relatively low. This means that it's likely that this is a counter-trend bounce, and not the bigger move higher.
Miners were the first to top, and the short-term breakout in the USD Index indicates that other PM markets are likely to follow.
Please note that the miners topped almost right at the vertex of the huge rising wedge pattern. Quoting last week's analysis:
(...) huge rising wedge pattern is about to form a vertex today or tomorrow. The same rule that applies to triangles has implications also here. The vertex is quite likely to mark a reversal date. Given the overbought status of the RSI (given today's upswing, it's almost certain to move above 70 once again) as well as miners recent unwillingness to track gold during its continuous rally, it's highly likely in my view that this will be a top.
Combine the USDX situation with Gold Miners' Bullish Percent and vertex-based reversal, and you get a high likelihood of lower prices in miners next.
The price targets for the precious metals market changed based on new information and gold's breakout to new highs. You will find details in today's Gold & Silver Trading Alert. We invite you to subscribe and read today's issue right away.
July 31, 2020, 8:35 AM
Available to premium subscribers only.
July 30, 2020, 6:56 AM
Yesterday's session was indeed volatile around the FOMC, just like we warned, and gold even moved to its previous high, likely forming a double-top pattern. Even though gold moved higher on an intraday basis, it didn't invalidate its previous breakdown, which was a bearish sign. Gold was likely to decline, and it is declining so far in today's pre-market trading.
The above chart shows just how precisely yesterday's upswing ended at the previous support line, verifying it (most likely finally) as resistance. The implications are bearish.
The next short-term support is at about $1,850, but we don't think that the decline will completely stop there. Instead, after a pause or corrective upswing, a move to about $1,700 - or even lower is likely in the cards. Naturally, this is based on the information that we have available at the moment of writing these words, and the outlook could change in the future.
Why? Because of the confirmations from other markets, including silver and - perhaps most importantly at this time - the USD Index.
Just like gold, silver moved back to its previous support line and verified it as resistance. It seems that both markets are waiting for USD's rally (which is likely to arrive shortly) to plunge.
And what did the USD Index do recently?
While gold didn't move back above its rising support / resistance line, let alone the previous high, the USD Index did move below its previous low.
This means that after a powerful short-term rally, gold is refusing to react to additional bullish indications. This is a strongly bearish sign. Naturally, gold's verification of its breakdown is bearish as well.
The USD Index itself is also very important, because while the move to new lows is not encouraging, it's worth keeping in mind that the early March bottom was actually a series of tiny bottoms, when the initial bottom was broken by just a little right before the USD soared.
Consequently, the loss of USD's bearish momentum might be the thing that one should focus on at the current juncture, and view the breakdown as bearish only if it is confirmed. At the moment of writing these words, the USD Index is already back above its Monday's intraday low.
At the same time, the USD Index is attempting to move back above its declining short-term resistance line. It seems that this attempt might finally succeed. Let's keep in mind that breaking above the analogous line in early March was the start of USD's powerful upswing.
Zooming out shows that there's a very good reason for the USD Index to rally here.
The USD Index just moved to the early-2018 lows, which were also the mid-2015 and 2016 lows (approximately). Additionally, the USDX moved to the rising long-term support line based on the 2011 and 2014 bottoms. And it all happened relatively shortly after the USDX moved below two important Fibonacci retracement levels: 61.8% retracement based on the 2018 - 2020 rally, and the 38.2% retracement based on the 2014 - 2020 rally.
All the above-mentioned factors suggest that the USD Index is going to rally in the very near future. Gold has been magnifying USD's tiny shows of strength, which suggests that any really visible rally in the USDX is likely to trigger a big sell-off in gold.
And a big sell-off in gold is likely to translate into an even bigger plunge in the gold stocks.
During Monday's session, miners reversed on big volume and it happened almost right at the vertex-based reversal. Gold stocks then continued to decline on volume that was not minor.
So far, the decline was relatively calm, but let's keep in mind that the same was the case during the first three trading days of both early-2020 declines. The GDX ETF declined rather insignificantly in late February, and the same was the case in the early March.
The important detail is that while gold moved to the precious high during yesterday's session, gold miners didn't. Their underperformance relative to gold along with the RSI above 70, and the recent reversal make the outlook very bearish for gold and silver mining stocks.
Summing up, it seems that gold has formed a double-top pattern, just as the USD Index seems to have finally bottomed. Gold and silver have both reacted very strongly to the USDX developments, which has very bearish implications for the following days. The verifications of the very short-term breakdowns in gold and silver serve as bearish confirmations.
The miners have reversed this week on strong volume and practically right at the vertex-based reversal, and it all happened after they had flashed the extremely overbought signal through the Gold Miners Bullish Percent Index.
The implications are very bearish for the next several days - weeks.
The big move in gold is just around the corner and the next several days could be critical. If you're interested in the precious metals market or are considering trading or investing in it, you'd likely appreciate our additional comments and daily premium analyses. We invite you to subscribe and stay updated right away.
July 29, 2020, 3:11 PM
Available to premium subscribers only.
July 29, 2020, 9:02 AM
Available to premium subscribers only.
Gold Investment News
Delivered To Your Inbox
Free Of Charge
Bonus: A week of free access to Gold & Silver StockPickers.