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
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
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold’s Downtrend: Is This Just the Beginning?

Commodities / Gold and Silver 2021 Feb 22, 2021 - 12:58 PM GMT

By: P_Radomski_CFA

Commodities

With the yellow metal just posting its lowest close since June and a bearish pattern forming, how vulnerable is gold to a further decline?

Gold and mining stocks just broke to new yearly lows – as I warned you in my previous analyses. And that’s only the beginning.

Let’s jump right into the charts, starting with gold.


Figure 1 - COMEX Gold Futures

In early February, gold broke below the rising red support line and it then verified it by rallying back to it and then declining once again. It topped almost exactly right at its triangle-vertex-based reversal, which was yet another time when this technique proved to be very useful.

Gold has just closed not only at new yearly lows, but also below the late-November lows (in terms of the closing prices, there was no breakdown in intraday terms). This means that yesterday’s (Feb. 17) closing price was the lowest daily close since late June 2020. At the moment of writing these words, gold is also trading below the April 2020 intraday high.

Gold was likely to slide based on myriads of technical and cyclical factors, while the fundamental factors remain very positive – especially considering that we are about to enter the Kondratiev winter, or we are already there. As a reminder, Kondratiev cycles are one of the longest cycles and the stages of the cycle take names after seasons. “Winter” tends to start with a stock market top that is caused by excessive credit. In this stage gold is likely to perform exceptionally well… But not right at its start. Even the aftermath of the 1929 top (“Winter” started then as well), gold stocks declined for about 3 months before soaring. In the first part of the cycle, cash is likely to be king. And it seems that the performance of the USD Index is already telling investors to buckle up.

And speaking of stocks, what about mining stocks? As you might already well know, just as with gold, the miners moved below the November lows in terms of both the intraday prices and daily closing prices. What does that mean? If you’d like to explore mining stocks in detail and are curious to know more about their prices and possible exit levels, then our full version of the analyses contains exactly what you need to know.

Getting back to gold…

Figure 2

If the fact that gold invalidated its breakout above its 2011 high, despite the ridiculously positive fundamental situation, doesn’t convince you that gold does not really “want” to move higher before declining profoundly first, then the above chart might.

As I wrote above, gold is currently more or less when it was trading at the April 2020 top. Where was the USD Index trading back then? It was moving back and forth around the 100 level.

100!

The USD Index closed a little below 91, and gold is at the same price level! That’s a massive 9 index-point decline in the USDX that gold shrugged off just like that.

There’s no way that gold could “ignore” this kind of movement and be “strong” at the same time. No. It’s been very weak in the previous months, which is a strong sign (not a fundamental one, but a critical one nonetheless) that gold is going to move much lower once the USD Index finally rallies back up.

Right now, waiting for gold to rally is like waiting for the light to turn green, arguing that eventually it has to turn green, while not realizing that the light is broken (gold just didn’t rally despite the huge decline in the USDX). Yes, someone will fix it and eventually it will turn green, but it doesn’t mean that it makes much sense to wait for that to happen, instead of looking around and crossing the street if it’s safe to do so.

Yes, gold is likely to rally to new highs in the coming years. And silver is likely to skyrocket. But in light of just two of the above-mentioned factors (gold’s extreme underperformance relative to the USD Index and the invalidation of a critical breakdown) doesn’t it make sense not to purchase gold right now (except for the insurance capital that is) in order to buy it after several weeks / few months when it’s likely to be trading at much lower levels?

We live in very specific times. Getting a “like” on a post or picture becomes a necessary daily activity and means of self-validation. Not “liking” something that others posted or that is massively “liked” may be frowned upon or even viewed as being disrespectful. Plus, it seems that no matter what you do, everyone gets offended very easily. When did honesty, independence and common-sense stop being virtues?

When it comes to gold investment analysis, it’s surprisingly similar. You either like gold and think that it’s going higher right away or you’re “one of them”. “Them” can be anyone who tries to manipulate gold or silver prices, “banksters”, or some kind of unknown enemy. “ Analysts' ” goal is often no longer to be as objective as possible and to provide as good and as unbiased an analysis as possible, but to simply be cheering for gold and provide as many bullish signals as possible regardless of what one really thinks about them. The above may seem pleasant to readers, but it’s not really in their best interest. In order to make the most of any upswing, it’s best to enter the market as low as possible and to exit relatively close to the top. What happens before a price is as low as possible? It declines. Why would something like that (along with those describing it) be hated by gold investors? It makes no sense, but yet, it’s often the case.

Top of Form

Bottom of Form

The discussion – above and below – can be viewed as something positive or negative for any investor, but while reading it, please keep in mind that our goal is the same as yours – we want to help investors make the most of their precious metals investments. Call us old-fashioned, but regardless of how unpleasant it may seem, we’ll continue to adhere to honesty, independence and common-sense in all our analyses

Ok, but why on Earth would the USD Index rally back up? The Fed is printing so much dollars – why would they be worth more?!

Because the currencies are valued with relation to each other and whether or not the USD Index moves higher or lower doesn’t depend only on what the Fed is doing.

Figure 3

What other monetary authorities do matters as well and right now the ECB is outprinting the Fed (that’s what the decline in the green line above means), which means that the euro is likely to fall more than the U.S. dollar. Therefore, the EUR/USD currency exchange rate would be likely to decline and since this exchange rate is the biggest (over 50%) component of the USD Index, it makes perfect sense – from the fundamental point of view – to expect the USD Index to move higher.

Can gold rally despite higher USD Index values? Absolutely. However, it would first have to start to behave “normally” relative to the USD Index, and before that happens it would have to stop being extremely weak relative to it. And the fact that gold is at the same price level despite a 9-index-point decline in the USDX is extreme weakness.

To make the technical discussion easier, I’m attaching the previous chart once again.

Figure 4

On Monday (Feb. 15), I wrote the following about the above chart:

The size and shape of the 2017-2018 analogue continues to mirror the current price action . However, today, it’s taken 118 less days for the USD Index to move from peak to trough.

Also, it took 82 days for the USDX to bottom in 2017-2018 (the number of days between the initial bottom and the final bottom) and the number amounts to 21.19% of the overall duration. If we apply a similar timeframe to today’s move, it implies that a final bottom may have formed on Feb. 12. As a result, the USDX’s long-term upswing could begin as soon as this week.

Also noteworthy, as the USDX approached its final bottom in 2017-2018, gold traded sideways. Today, however, gold is already in a downtrend. From a medium-term perspective, the yellow metal’s behavior is actually more bearish than it was in 2017-2018.

Also supporting the historical analogue, the USD Index’s current breakout above its 50-day moving average is exactly what added gasoline to the USDX’s 2018 fire. Case in point? After the 2018 breakout, the USDX surged back to its previous high. Today, that level is roughly 94.5.

Based on this week’s rally it seems that the final bottom formed on Tuesday (Feb. 16) – just 2 trading days away from the analogy-based target, and in perfect tune with what I wrote back then. The breakout above both: the declining blue line, and the 50-day moving average was verified, and the short-term outlook here is clearly bullish.

But isn’t the current situation similar to what happened in mid-2020? The correction that was followed by another decline?

In a way, it is. In both cases, the USD Index moved higher after a big decline, but that’s about it as far as important similarities are concerned.

What is different is the entire context. Even a single look at the above chart provides an instant answer. The mid-2020 correction was like the mid-2017 correction, and what we see right now is the post-bottom breakout, just as we saw in the first half of 2018.

There are multiple details on the above chart that confirm it, including the sizes of the medium-term declines, the position of the price relative to the declining support/resistance lines, as well as relative to the 50-day moving average, and even the green arrows in the RSI indicator show how similar the preceding action was in case of this indicator. The vertical dashed line shows “where we are right now” in case of the analogy.

Also, the fact that the general stock market has not yet declined in any substantial way only makes the short-term outlook worse (particularly for silver and miners). When stocks do slide, they would be likely to impact the prices of miners and silver particularly strongly.

And please remember, we’re looking for the bottom in the precious metals sector not because we’re the enemy of gold or the precious metals investor . On the contrary, we’re that true friend that tells you if something’s not right, even if it may be unpleasant to hear. We want to buy more and at better prices close to the bottom, and we’ll continue to strive to assist you with that as well.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

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.

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