Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Will Gold and Silver Prices Drop Any Further?

Commodities / Gold and Silver 2013 Dec 20, 2013 - 06:05 PM GMT

By: P_Radomski_CFA

Commodities

Many times in our previous essays we have written that if you want to be an effective and profitable investor, you should look at the situation from different perspectives and make sure that the actions that you are about to take are really justified. Therefore, at the beginning of the month we examined gold and silver mining stocks to find out what kind of impact they could have on precious metals’ future moves. Back then, we concluded that the medium-term outlook for gold was bearish and mining stocks seemed to be leading gold lower. To make sure that our assumptions were correct, we decided to check the chart featuring gold’s price from the non-USD perspective and also from the European perspective. You could read the conclusions in our essay from Dec. 6, 2013.


A week ago we introduced you to 3 signs of gold’s upcoming decline. At that time we wrote in the summary:

(…) the medium-term outlook for gold remains bearish and it seems that we might see another sizable downswing shortly.

In the following days, after the essay was posted, gold, silver and mining stocks reversed and started their recent declines. Day by day, we saw lower values of gold, silver and mining stock indices. With this downward move, the yellow metal, the HUI Index and the AXU Index declined below their December’s lows (to be precise: at the same time silver dropped to slightly above its previous low).

Taking these circumstances into account, you are probably wondering whether the recent declines will continue or not. Although we saw a small rebound in the early European session, we clearly see that the precious metal sector remains weak.

As we emphasized in our previous essays, many times in the past the situation in the U.S. dollar and the euro gave us important clues about future precious metals’ moves. Therefore, today we’ll examine the US Dollar Index (from many perspectives) and the Euro Index to see if there’s anything on the horizon that could drive the precious metal market higher or lower in the near future. We’ll start with the medium-term USD Index chart (charts courtesy by http://stockcharts.com).

Looking at the above chart, we see that earlier this week we had a similar situation to the one that we saw last week. Just like a week ago, the USD Index broke below the medium-term support line based on the February 2012, September 2012 and January 2013 lows (the bold black line) and the lower medium-term line based on the September 2012 and the January 2013 lows (the thin black line). However, once again this deterioration was only temporary. The dollar quickly rebounded and invalidated the breakdown below both medium-term support/resistance lines, which is a sign of strength and a bullish factor. From this perspective, there was no true breakdown and the trend remains up.

Let’s check the short-term outlook.

On the above chart, we see that earlier this week, the USD Index tried to break above its horizontal support line based on the June low without a positive result. These circumstances triggered a sharp decline on Wednesday - just before the Fed released its statement. However, the greenback quickly reversed course when the Federal Reserve announced that it will start winding down its stimulus program (small, but still) and rallied above the 80.5 level.

With this upswing, the U.S. dollar broke above the declining short-term resistance line. Although, the USD Index declined in the following hours and came back below both resistance lines, it turned out on the following day that this small deterioration was temporary. On Tuesday, the greenback extended its rally and moved higher breaking above both resistance lines once again. Taking this fact into account, we can conclude that the outlook remains bullish and that it could be the case that the decline is already over and that another rally in the US Dollar is just starting.

Let’s now take a look at the long-term Euro Index chart.

The first thing that catches the eye on the above chart is the target area, which was reached once again.

In the previous week, the European currency almost reached the October high. Back then, it seemed that further growth was limited, not only because of this resistance level, but - even more importantly – because of the long-term declining resistance line based on the 2008 and 2011 highs (in terms of weekly closing prices). As a reminder, this strong resistance line successfully stopped growth in October and triggered a sharp decline. Additionally, at that time, a similar situation preceded a local top in precious metals. On top of that, previous tops (in 2008 and then in 2011) were followed by major declines in the precious metals sector. If history repeats itself, we may see similar price action in this situation.

Looking at the above chart, we clearly see that earlier this week the Euro Index reversed course after reaching a strong resistance zone and declined below the level of 137. What’s most interesting, precious metals followed that decline, which suggests that we’ll likely see further deterioration in the PM’s sector – similarly to the one seen in the past.

Please take a moment to compare the euro’s performance in the past few weeks with the performance of the precious metals sector (lower part of the above chart).

Let’s now take a look at the medium-term Euro Index chart.
 

Looking at the above chart, we see that the Euro Index climbed once again this week and reached its very strong resistance zone created by the previous 2013 high and the short-term rising support line based on the July and September lows. As you see on the weekly chart, the European currency didn’t manage to break above these levels, which triggered a sharp decline and pushed the euro slightly above the 38.2% Fibonacci retracement level based on the Nov.-Dec. rally. From this perspective, the outlook for the coming weeks is bearish.

Having discussed the above, let’s take a look at our Correlation Matrix to find out how all this can translate to precious metals and mining stock prices.

Basically, the short-term numbers don’t tell us much at this time when we look at them directly, but can tell us something if we look a bit beyond them.

The correlation between the USD Index and the precious metals sector is slightly positive in the 30-day column (and even moderately significant in the case of the mining stocks), which tells us that in the past 30 days PMs and the USD Index have moved on average in a similar direction. However, this was the case when they both declined. When the USD moved higher (this week), metals and miners declined even more. This is a very bearish combination – whatever the USD does, the precious metals sector seems to either decline modestly or strongly.

Once we know the relationship between the U.S. currency and the precious metal sector, let’s check the current situation in gold.

In our essay on gold from Dec. 6, 2013 we wrote the following:

(…) earlier this week we saw a major change on the above chart as gold broke below the rising long-term support line (…) the implications are bearish, especially that the RSI indicator is currently not oversold – it’s above 30 and well above its previous 2013 lows. Back in 2008, the RSI indicator moved close to its previous lows when the final bottom was in. In this case we would need to see much lower gold prices to have RSI close to the 20 level. The next stop for gold is at its 2013 low, slightly above $1,170. It seems to us, however, that this will not be the final bottom for this decline, we expect the final one to form close to $1,100, possibly even at $1,050.

Last week, we saw a very temporary move above the previously-broken rising long-term support line, which was followed by another decline. In our previous Premium Update, we wrote that if gold was not able to hold above this line despite a decline in the USD Index, then it was truly a weak market and quite likely to decline much more.

Looking at the above chart, we see that earlier this week we had such price action. Gold didn’t manage to successfully climb above the rising long-term support line (not to mention staying above it), which triggered a sharp decline. With this downward move, the yellow metal not only declined below last week’s low, but also slipped below the level of $1,200. These circumstances clearly show the weakness of the buyers and it seems that the previous 2013 low will be reached quite soon.

The exact target for gold is quite difficult to provide. For silver and mining stocks there are, respectively: combinations of strong support levels, and a major support in the form of the 2008 low. In the case of gold, there are 4 support levels that could stop the decline and each of them is coincidentally located $50 below the previous one starting at $1,150: $1,150, $1,100, $1,050, and $1,000.

Summing up, the current situation in both currencies suggests that we are likely to see further deterioration in the Euro Index and improvement in the USD Index in the near future. Taking these facts into account and combining them with the current relationship between the U.S. dollar and the PMs, we can conclude that the implications for the precious metal market are bearish. Please note that the exact target for gold is quite difficult to provide based on the gold chart alone. While it’s likely that the final bottom will form below $1,150 and above $1,000 (or at least not much below this level), if we want to get a more specific price projection, we should use other techniques, especially those which worked in mid-2013 when the previous gold’s low was formed.

To make sure that you are notified once the new features are implemented, and get immediate access to our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold newsletter. Sign up today and you'll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Precious Metals Investors and Traders along with our 14 best gold investment practices. It's free and you may unsubscribe at any time. Thank you for reading.

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Gold & Silver Investment & Trading Website - SunshineProfits.com

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in