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The Groundhog Just Can't Wait to See the Golden Rally

February 14, 2020, 5:30 AM Przemysław Radomski , CFA

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The Groundhog Day movie featuring Bill Murray was released in 1993, but it easily could have been based on what we see right now. At least in case of the precious metals market. Practically everything that happened yesterday, confirmed what we already wrote based on Wednesday's price moves (which was in tune with what happened on Tuesday, anyway).

The outlooks for the USD Index and the precious metals market are exactly the same as they were yesterday. PMs are likely to decline significantly in the medium term, but they are likely to rally in the very short term.

The USDX moved up and PMs moved down yesterday, which might seem to contradict the above, but it doesn't.

On Wednesday and in early Thursday trading, the USD Index moved higher and then declined less than it had rallied.

At the same time both gold and silver moved lower, and then rallied more than they had declined.

PMs were showing exceptional short-term strength relative to what the USD Index has been doing.

Shortly thereafter - in the last 24 hours - gold and silver are a bit higher, while the USDX is once again higher (only about 0.10, but still). PMs continue to refuse to decline when faced with USD's rallies.

Just as gold and silver are providing ridiculous amounts of very strong indications that the are going lower in the following months, they are providing ridiculously strong signals that they are not going to decline far unless they rally first.

The very short-term decline in the USDX and the very short-term rally in the PMs wasn't cancelled - it was just slightly delayed.

Let's take a look at the details.

The Immediate PMs Outlook

Miners' performance was relatively weak recently compared to the one of gold, indicating that the early part of the upswing is well over and that we are now in its final round. The only thing missing is silver's sudden outperformance. Based on how silver is responding to even a tiny decline in the USDX, it seems that we won't have to wait for this final sign for much longer.

Short-Term USDX Dynamics

The USD Index is just about 0.20 away from the 2019 intraday high. It's also most overbought (based on the RSI indicator) since August, 2018. That's right, it's more overbought that it was throughout the entire 2019.

This means that the USD Index is most likely already topping, or that it's going to top very, very soon. Given its recent momentum, it would be likely to reach the 2019 intraday high shortly. Plus, let's keep in mind the triangle-vertex-based reversal, which means that the USD should reverse any hour or day now.

The USDX could top even before it moves to the 2019 intraday high and that's because of two things. They would not be clear on the above chart, so we created a new, bigger one for you. Please note that you can click on it to enlarge it.

One thing is the 2019 high in terms of the daily closing prices. It was just reached. There were four times when the USD Index tried to break above the 99 level. Three times in 2019 and once today. In each 1999 case, the USDX declined shortly after such attempt. This means that the top might be forming right now.

The second thing is the declining resistance line that's based on the two highest highs of 2019. This line is not horizontal, but slowly descending. It currently provides resistance at about 99.18, so if the USDX was to rally today, it's upside potential in the near term would very limited.

The outlook for the next few days (or at least hours) for the precious metals sector remains bullish and the profit-take level that we disclosed to our subscribers remains up-to-date.

Thank you for reading.

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager

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Feb Market Overview

Gold Market Overview

Last month, we laid out our gold outlook for 2020. In the February edition of the Market Overview, we update our fundamental analysis to incorporate the latest data, in particular those about the US fiscal policy. As the bipartisan consensus is that deficits don't matter, the perspective for gold this year could be better than we previously thought. Second, we look beyond 2020 and sketch the fundamental trends that will likely shape the global economy and the gold market through the whole 2020s.

Moreover, we will analyze two important recent developments. The first one will be the 2019 repo crisis and the following Fed's intervention in this market. Second, the Riksbank has ended recently its experiment with negative interest rates. What does it all imply for the gold market? We invite you to read our Gold Market Overview and find out!

Read more in the latest Market Overview report.

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