Gold price moves back and forth, but it doesn’t mean the trend changed, and the USD Index confirms it.
Thursday’s big decline in the precious metals sector, metals, and miners took a breather – that’s normal and doesn’t change the bearish implications. I previously wrote that gold, silver, and mining stocks were very likely to slide based on i.a. on their weekly reversals (and the opposite was the case for the USD Index), and that’s exactly what we saw last week. Besides, based on today’s pre-market price moves, it seems that the corrective upswing is already over.
Gold Corrects but Nothing More
The move up that we saw (chart courtesy of https://goldpriceforecast.com) was rather negligible compared to the size of the preceding slide, and it didn’t change anything.
The same with the USD Index.
The U.S. currency moved back-and-forth and ended the day pretty much unchanged.
The breakdown below the previous 2023 lows was clearly invalidated in weekly closing price terms. This implies much higher USD Index values in the following weeks, regardless of whether we see a daily rally today or in the following days (and it’s quite likely that we’ll see higher USDX values, anyway).
Getting back to the gold price and zooming out allows us to see something additional.
Heads and Shoulders
Gold (and more precisely, GLD, which I’m using today, as our data provider seems to have trouble with the gold chart today) appears to be forming the right shoulder of a bearish head-and-shoulders pattern.
So far, this formation is just potential, but given the situation in the USD Index, it’s very likely that the right shoulder of the formation will be completed as the gold price continues to move lower.
The important implication is that once gold breaks below the neck level of the pattern (at about $1,925 in gold futures and at about $178 in GLD) and then verifies this breakdown, the next target will be over $150 lower – close to the October 2022 high and the mid-November 2022 low. That’s a powerful short-term slide that we’re likely seeing in the not-too-distant future – perhaps as early as August.
The same is likely for the GDXJ – a proxy for junior mining stocks, but this time, the target is not that new.
The targets based on the head-and-shoulders pattern are created by duplicating the size of the head of the pattern and adding it to the place where the price breaks the neck level. Assuming that it’s going to happen sometime in August (I assumed early August, but it doesn’t matter that much for the sake of this estimation), this implies the next serious downside target at about $26.
Sounds familiar? It should because this is the level that I described as the next really major downside target for junior miners – that’s where the 2022 lows formed.
And you know what is common after the breakdowns below the head-and-shoulders patterns? Small verifications of those moves.
For example, right now, we could see the above-mentioned breakdown, then a decline to about $33 (the 2023 lows), followed by a corrective rally to about $35 (the neck level of the pattern), and the huge slide would start once this correction is over.
Is this a move that’s tradable? This will depend on what happens in other markets – for example, whether the USD Index is overbought on a short-term basis at that time. As always, we’ll keep the Gold Trading Alert subscribers informed – also via intraday Alerts whenever the situation requires them.
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Sincerely,
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief