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Gold Resists Soaring USD – The Show’s Not Over Yet

Commodities / Gold & Silver 2020 Feb 06, 2020 - 04:51 PM GMT

By: P_Radomski_CFA

Commodities

The precious metals market didn’t do much yesterday, but – what may seem surprising - that’s quite bullish. It’s bullish, because the USD Index rallied to new yearly highs and this “should have” caused the PMs and miners to decline. It didn’t, which suggests that the decline is not yet ripe for continuation.

In this case, the most likely scenario is that we’ll see another rebound in gold, silver, and mining stocks as soon as the USD Index corrects. Then, PMs could form their final top, and the big decline could begin.

Alternatively, this cycle of back and forth movement could continue a bit longer. Gold could spike, but only if the coronavirus scare gets much worse, as we outlined yesterday. If that happens, silver and miners are not likely to be affected to the same extent as gold – just like what happened in 2014 during the ebola scare.


The above might be confusing so let’s put it in other words, simplifying.

PMs showed resilience yesterday, suggesting that they are likely to rally once USDX corrects.

When the USDX corrects, PMs are likely to rally and silver might outperform gold at that time, as that might be the final part of PMs’ rally.

What may or may not be related to the above is the peak interest in (fear of) the coronavirus. When people get extremely scared of the coronavirus, gold would be likely to rally higher and to outperform silver and mining stocks.

Our plan here is to take profits (…) <trading plan is reserved to subscribers> When we do, it will mean that gold is getting close to its local high.

Ok, so, when could the USD Index correct triggering another move up in the precious metals sector?

USD Index Has Momentum

Quite likely relatively soon. The USD Index broke above its declining resistance line and moved to a new yearly high yesterday. The momentum is strong so it could reach its November 2019 high as soon as today.

Now, based on the recent local high (the one that was just broken), we can estimate how high the USD Index is likely to move in the next few weeks. This can be done thanks to the Fibonacci extensions technique. In short, it means multiplying the size of the previous rally by 1.618.

In practice, we can do it by using the Fibonacci retracement tool, but drawing it in a way that anchors the start of the retracement at the initial bottom, and then placing the 61.8% Fibonacci retracement at the initial top. The 100% “retracement” now points to the target. Why would the “retracement” work in this way? Because 100% / 61.8% = 1.618 (approximately) That’s one of the very specific properties of the Phi number. Others include that 1 / 0.618^2 = 2.618 (approximately) and many more.

But the math behind it is not that important – what is important is that it very often works.

In all cases that we marked on the above chart, this technique pointed to important short-term tops. Currently, it points to a top being likely at about 99.24. This is the 2019 high, which makes this level very likely to stop the USD Index… for some time. After all, the USD Index is in a powerful uptrend – it’s likely to exceed its previous highs despite short-term pullbacks.

So why do you mention the November 2019 high, while it is THE 2019 high that’s likely to be reached?

Because the USD Index might not rally to the 2019 high without an intermediate correction. Please note what happened in the cases that we applied the Fibonacci extension to. In all cases, except for the July rally, the USD Index first formed an initial high, corrected, and only then moved to the Fibonacci-extension-based target.

The November high is the next strong (from the short-term point of view) resistance and it’s confirmed also by a short-term inverse head-and-shoulders pattern.

The target is based on the size of the head of the pattern and it quite clearly confirms the target based on the November 2019 high.

Summing up, the USD Index is likely to correct after reaching about 98.5 (the November 2019 high), which is likely to trigger a very short-term upswing in gold and silver. Then the greenback is likely to rally once again and PMs might fall (unless the coronavirus scare peaks, in which case gold could move higher once again for several days).

We hope you enjoyed reading today’s free analysis. The full version thereof includes also our trading plan and the estimations regarding when the next rally and top in gold are likely to take place. If you’d like to read it, we invite you to subscribe to our Gold & Silver Trading Alerts. If you’re not ready to subscribe, we encourage you to sign up for our daily newsletter - it's free and if you don't like it, you can unsubscribe with just 2 clicks. You'll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts as a starting bonus. Sign up for the free gold newsletter today!

Thank you.

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Tools for Effective Gold & Silver Investments - SunshineProfits.com
Tools für Effektives Gold- und Silber-Investment - SunshineProfits.DE

* * * * *

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.

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