Gold soared, and miners rallied as well. There are signs, however, that this sharp upswing might be temporary.
This is the case not just due to the overbought situation in both GLD and GDXJ, but also given the quick pullback in the USD Index and its likely temporary nature.
Quoting my yesterday’s comments on the USD Index:
For example, soaring USD Index could trigger gold’s invalidation, leading to a bigger slide. For now, it is the USD Index that pulled back after yesterday’s rally, however, this is very normal given USD Index’s monthly reversal turning point.
As it was the case many times in the past (marked with dashed lines), the USD Index formed some sort of reversal close to the turn of the month. Yesterday was the first day of the month, so its normal that after the sharp rally, we now see a correction.
This doesn’t change the long-term bullish picture for USDX.
The USD Index is after its second (big, there were also a few smaller ones) failed attempt to break below its rising, long-term support line based on the 2011 and 2014 lows. In each previous case, rallies followed, and in the other big case (the 2020 decline) the rally that followed was spectacular.
Besides, since the USD Index broke above its most recent medium-term highs, the only previous highs stopping it is much higher – above 114. This means that the upside here is huge.
While GDXJ is strong here (and NEM is rallying, too), FCX declined (at least initially), even despite copper’s upswing.
The profits on this short position in FCX remain intact (proving that diversifying into this trade was a good idea – we re-entered it on Jan. 17) and this weakness not only suggests that they are likely to grow soon, but also that the commodity sector is likely to turn south shortly. After all, when stocks “should” be rallying, but that’s not taking place (copper stocks should be rallying when copper is moving higher), this tells us that the entire sector really wants to move lower.
And since commodities and PMs move together in case of bigger price moves, it seems that the rally in PMs is close to its end. If it seems that gold market is taking off and there’s nothing stopping it, please note that this is exactly the “feeling” that investors feel at the tops.
Also, please note that from the bigger point of view, copper is poised to slide.
Copper recently bounced off its 2006 (yes) high (which means that it’s actually cheaper in real terms), but as it already invalidated the move above its 2021 highs, it seems that it’s about to break lower – also below the rising red and blue support lines.
And when all those support levels fail, copper is likely to fall like stone in water. Something like that happened in 2008 and 2022. Mining stocks fell profoundly in both cases in a matter of months.
I know that today’s move higher in gold and miners might seem very bullish, but please note that this move appears to be just temporary. The situation is excessive and likely to be reversed soon. Thank you for your patience.
Tomorrow’s Webinar with Rick Ackerman
We’ll host a free webinar with Rick tomorrow, and I encourage you to join in – Rick will be discussing gold and bitcoin, and he’ll be answering questions from the public. I find his methodology (Hidden Pivots) quite interesting, especially for very short-term trading purposes.
Rick had some great trading successes recently, so I’m sure it will be a very interesting event. And yes, you’ll be able to ask questions as well.
The webinar is free and it’s going to take place tomorrow, Feb. 6 at 10:30 AM EST / 4:30 PM CET. I’ll be there and I encourage you to join in as well. Reserve your seat today.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief