Not much changed in the precious metals market yesterday, despite the early decline. The initial price moves were reversed - silver and mining stocks close relatively unchanged, while gold finished a few dollars higher.
This is bullish for the precious metals market, because based on USD's rally, the PMs should have declined. And they didn't either decline or move higher, which shows relative strength. The initial move lower in silver is bullish on its own because of where silver moved and what it didn't manage to do.
Silver's Bullish Sign
Silver moved below the very short-term declining support line which is also a neck level of the supposedly bearish head and shoulders pattern. "Supposedly", because this pattern is bearish only once it's confirmed. And instead of confirming it, silver made a tiny attempt to break below the neck level and then invalidated this breakdown. The invalidation of the breakdown is a very bullish sign for the very short term.
The above chart is based on just hourly candlesticks - the H&S pattern is not really visible in case of our regular daily perspective. Still, the implications are quite important for the next several days.
The Full PMs Perspective
Gold's close was actually the third highest close of this year, which is quite bullish given USD's daily upswing. But we already wrote about that. What we didn't mention yet, is the reversal in mining stocks. It looks like a bearish reversal and it does take away some of gold's short-term shine, but overall we don't think it's a topping sign yet.
Why? Because there was absolutely no confirmation from silver yet. And by confirmation we mean clear strength and outperformance of gold. That's what tends to take place at the top and we have yet to see it.
What we saw in miners was similar to their late October 2019 performance, relatively early in the short-term upswing.
You might also be wondering about the lack of visible rally in light of the recent session when the volume was extremely low.
As we wrote yesterday, we saw only a handful of similar sessions and they were mostly good opportunities to go long. The above chart features 8 similar sessions. 5 out of them were good opportunities to go long in the short term, but not necessarily in the immediate term. 2 of them were good opportunities to go long in the very short term. The only remaining case - in early November 2018 - was followed by a very short-term downswing and then a rally.
In almost all cases, bullish price action followed, which confirms our bullish outlook for the short term (and short term only).
The key thing is that in most (5 out of 8) cases, the rally didn't follow immediately but a day-few days after GDX declined on extremely low volume. Consequently, the lack of visible movement yesterday is perfectly normal.
Also, let's keep in mind that the USD Index is still vulnerable to a corrective decline.
USD Index Status
The blue lines show the times when the USD Index corrected meaningfully for the first time since bottoming in a meaningful way. We saw only a very modest correction so far, which means that this might have not been "it". Consequently, another quick slide could be in the cards for the USDX before its rally continues. Such a pullback would be a perfect trigger for the precious metals' upswing.
On Monday, we featured a long-term triangle-vertex-based reversal that's scheduled for early February. There is, however, also a short-term reversal in case of the USD Index. It's based on the declining short-term resistance line and the very short-term rising support line. They cross very close to the end of January, suggesting that this is where the next reversal could take place.