In my Friday’s analysis, I provided multiple details regarding multiple charts and since pretty much everything that I described remains up-to-date.
Today, I’ll focus on two things that did change. To be more precise, they did not change the outlook – they are simply new indications that I’d like to comment on.
The first one is about the forex market and the second one is silver’s outperformance. Let’s start with the former.
The U.S. dollar moved sharply lower on Friday, and it moved back up before the closing bell. This was the third consecutive day when we saw a sharp move lower in the USDX.
There are two aspects of this decline that I’d like to comment on. First is gold’s reaction to it. There was practically none. I marked the March rally on the above chart as well as the current performance of gold as they both corresponded to similar declines in the USD Index. Back then gold rallied substantially and right now gold didn’t rally at all – despite some back-and-forth movement.
This simply confirms that gold price most likely already topped and now it’s in a downtrend.
This is also in perfect tune with what we saw in September 2023 and with what I wrote about this analogy in the past. I wrote that gold might move higher a little while the USD Index consolidates and that’s what’s been taking placed. The difference is that the USD Index’s decline this time was bigger and yet, it didn’t make gold rally – which suggests that gold is not done declining just yet.
The second aspect of the recent decline and Friday’s reversal is what it means for the USD Index itself and its likely impact on gold going forward.
Just as it seems at the first sight – the nature of the daily reversals is bullish if they are after a decline. After all, that’s what’s in the name “the daily reversal”. But that’s not all – the important detail is that the recent decline and the reversal itself is how the USD Index performed in March, and the daily reversal was indeed the end of the decline, that launched the USD Index much higher. Naturally, this analogy has very bullish implications for the USDX, which is bearish for the precious metals sector.
The details of this decline and the reversal are even clearer (making the above-described scenario more realistic) once we dig deeper.
You see, the decline in the USD Index was most likely closely linked with the USD/YEN’s breakout and its subsequent verification.
The breakout in the USD/YEN currency pair was huge and it had very meaningful implications – and it still does. It was confirmed as the price stayed above the previous highs for multiple days. However, it’s common for breakouts, even the most volatile ones, to be followed by corrections that take them back to the previously broken levels. This way the market can VERIFY if the move above this level was accidental or not. Will there be buyers at that level? If there’s enough of them to keep the price above the level, the breakout will be viewed as verified, and thus what was once support will have proven to be resistance. This makes it clear that the market is ready for another big move up.
This is exactly what happened on Friday.
This means that the recent declines in the USD/YEN pair and the USD Index itself (of which the USD/YEN is the second-biggest component) were normal and what we saw on Friday was very important.
It all suggests that the U.S. dollar can now rally further. And this is bearish for the precious metals sector.
It seems that the major tide is here in the case of currencies (USD/YEN!), stocks (tech stocks, broad market), bitcoin, and precious metals. It also seems that junior mining stocks provide an excellent opportunity right now, and I invite you to subscribe and read all key details in my premium Gold Trading Alert (along with trading details). Subscribe today.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief