I entitled my previous analysis, “Gold’s Goodbye Kiss to the Previous High on Valentine’s Day” and that’s exactly what happened.
Gold plunged after touching its previous top.
Did the triangle-vertex-based reversal work on a near-to basis, as it was likely to?
Yes, it did.
Did we see two distinct tops within just one trading day away from the vertexes?
Yes - once again.
Will we see another upswing today because the reversal is just ahead on the 4-hour gold chart?
This is possible, but it’s not required for this pattern to work. It seems that the most important thing already happened based on the pattern created on the daily chart. Gold has most likely topped.
I’ll get back to this after introducing a few extra factors.
Remember the analogy to 2011 that I commented on previously? Given how high gold topped this time and the shape of the top, it’s even more up-to-date.
You see, back in 2011, gold topped right below the all-important $2k mark. This time, it topped right below the all-important $3k mark.
The additional remarkable detail here is that gold topped in a double-top pattern then, and it seems to have done the same this time.
My other comments on the above chart remain up-to-date as well:
Sharp rally to new highs in gold, smaller rally and not to new highs in silver, and a head-and-shoulders pattern in the GDXJ – that’s exactly what we see right now, with the only difference being that in 2011 we had lower lows and lower highs while the H&S pattern was formed, and this time, we have higher lows and higher highs. But overall, miners and silver still underperform.
The dashed lines are parallel – GDXJ is forming the right shoulder for the broad H&S pattern. Some might say that it has a one big left shoulder and some will say that there are several left shoulders, but it really doesn’t matter. Both forms of the H&S pattern are acceptable. We have a one distinct high (the head) and we have an overall declining volume during the pattern.
Given gold’s turning point, the panic-led nature of the most recent upswing (we’re running out of gold!), miners’ underperformance (no breakout above the 2024 high), and the overall similarity to 2011, it seems that the top is at hand, and we are well positioned to take advantage of it.
Speaking of gold and miners, please take a look at their recent price action in relative terms. And while you’re at it, please focus on what silver did.
The small, green lines help to see what happened to prices since their early February top. Gold moved to it, silver moved below it, and miners moved below it in a much more profound way.
It’s obvious that the gold mining stocks are underperforming gold to a huge extent right now. This is one of the best ways to detect times when going short mining stocks provides much better odds of success than going long.
The other way is to watch for silver’s sudden outperformance relative to gold. Bonus points if silver breaks through a resistance level only to invalidate it shortly thereafter. Both just happened.
This is a book example of signals that I’m looking for when confirming that the top is in.
All right, so if the top is in, then what can one make of the fact that the triangle-vertex-based reversal is still ahead? Will we get another $40 rally?
It seems doubtful. Just as daily charts tend to be more important than 4-hour ones (which are more important than hourly ones, 15-minute ones, and so on), it could be the case that the triangle-vertex-based reversals based on the daily chart provide indications for more important tops. In other words, while we might still see some kind of top in gold later today or early tomorrow, it could be just a smaller local top after the reactive rebound, not a third major high in a row. Perhaps it would form close to $2,930 or so.
The key thing is that it doesn’t seem to matter that much – either way, we’re likely to see declining gold in the following weeks and – most likely – days.
Also, remember how I wrote about the 61.8% Fibonacci retracement in copper? I wrote that I didn’t trust the breakout above it, as the previous attempt to move above this level also failed after two trials. Given Friday’s and today’s early decline, it’s obvious that this is also what we saw this time.
And just as a bigger decline followed back then, a bigger decline is likely to follow now (leading to declines in copper stocks, just as FCX as well).
Of course, this comes on top of the other indications that I discussed in the previous Gold Trading Alerts.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief