I previously wrote about some details coming from the broader perspective and some from the immediate-term analysis, and all that remains true.
EDIT: Visit this link for Gold Price Forecast for October, 2024
The recent weekly reversal was so huge that its impact on the next weeks really needs to be kept in mind at all times. It’s not likely that a daily price move in any direction (…) would invalidate the implications of the powerful weekly (!) reversal.
In case that massive reversal seems like a distant memory, here’s a reminder of what happened.
Gold soared above $2,100 only to then plunge to almost $2,000, and in happened on huge volume. This was the most profound weekly reversal in years. It was similar to the reversal that we saw in May 2023 and the one from March 2022, and they both started big declines.
The same is likely this time.
This means that this and last week’s moves higher were just a small rebound before the decline’s continuation.
This is particularly likely given the fact that both previous weekly reversals were followed by some kind of bounce before the decline really picked up pace. In 2022, it took several weeks before the second (lower) top formed and in May 2023 the corrective upswing was over within a week. Right now, we’re 1.5 weeks after the reversal, which means that the decline could start any day now.
Also, please note that in 2022, gold corrected over 50% of the initial decline before finishing the rebound, and in May 2023, gold corrected slightly over 61.8% of the initial decline before moving south. This means that the size of the rally that we just saw is nothing extraordinary. In particular, it doesn’t mean that gold rallied so much that it invalidates the immensely bearish implications of the recent weekly reversal.
Gold recently moved a bit above the 61.8% Fibonacci retracement level, just like it did earlier this year, and – again, just like it did earlier this year – it then moved back below it. Moving back below this retracement meant that the top was in. The same is likely this time.
This is in perfect tune with the previous post-massive-reversal-top price patterns, which means that it doesn’t invalidate them. This is a normal behavior after a gargantuan reversal.
This is in perfect tune with the previous post-massive-reversal-top price patterns, which means that it doesn’t invalidate them. This is a normal behavior after a gargantuan reversal.
Yes, I put the same paragraph twice, and I did it in purpose. If there’s one thing that I want you to remember about the current market situation is this. I’m going to continue to describe what’s happening in other markets, but – given the profoundness and importance of the weekly reversal – the above is enough to make the current outlook for gold (and in consequence for silver and mining stocks) bearish for the following weeks (and likely months).
Now, keeping this in mind, let’s take a look at gold’s short-term chart.
Gold recently broke below its rising support line (which means that it turned into resistance) line in a stealthy manner. Then, even though gold moved a bit higher, it actually verified the breakdown, which was a bearish sign.
Finally, gold tried to move back above the rising resistance line, and it failed. Yesterday’s, and today’s declines clearly took gold back below this line, thus flashing another sell signal.
Here’s how the situation looks like from the GLD ETF point of view:
In short, the situation is similar, and the implications are not identical, but even more bearish.
The reason is that from the GLD ETF point of view, gold didn’t just fail to rally back above the rising resistance line. It also tried to move to new highs, and it failed to do so, by closing back below them yesterday.
This is in perfect tune with gold’s previous weekly reversal.
Yes, I know that I’ve been writing about the weekly reversal multiple times already, but I really want you to keep it in mind. If I gave it just as much attention within the text as to many other signals, you might think that they are similarly important, and this couldn’t be further from the truth. Just because there are some news releases or signals from some indicators every day, doesn’t make any of them important. And gold price’s weekly reversal is not just an event, it’s THE event.
Meanwhile, junior mining stocks are down this week and they declined quite profoundly yesterday.
On the above hourly candlestick chart, you can see that the GDXJ moved clearly below the most recent low, and also back below the July and early-December highs. This is particularly bearish not only because of the invalidations of the breakouts that it means. It’s particularly bearish, because yesterday’s almost 3% decline in the GDXJ took place along with just a 0.58% decline in the GLD, which means that junior miners underperformed gold to a large extent without gold’s help.
And given gold’s pre-market decline, it’s likely that this is just the start of a bigger move lower, not its end. This is in perfect tune with the way in which the GDXJ used to top in the previous months.
I previously wrote the following:
In case of this ETF, the link between big-volume rallies and local tops is not as clear as it is in case of silver, but it’s still present. I marked the similar cases with arrows and in 6 out of 9 such cases, big-volume rallies marked local tops, or those tops followed very soon. Only in 3 out of 9 cases, big rallies followed.
Interestingly, all those three bullish cases were preceded by declines that were much bigger than what we saw recently. This suggests that the bullish analogies are not the correct ones. The bearish ones are.
Moreover, please take a look at the areas that I marked with red rectangles. They mark important tops in the GDXJ ETF. In call those cases, junior miners topped by first declining somewhat, then correcting, and then sliding without looking back. In two out of three cases the second (final) top was below the initial one, and in the remaining case (in early 2022), the second (final) top, was slightly higher than the initial one.
So, is seeing the GDXJ close to the previous top (but still below it) a bullish game-changer? Absolutely not.
All in all, the outlook for the precious metals market remains strongly bearish and the potential for our current trading positions in junior mining stocks remains enormous.
You can find its details in the full version of today’s analysis – today’s premium Gold Trading Alert. Also, please note that my subscribers stay up-to-date at all times – when things get hot, I’m sending intraday Alerts and that’s the part of the service that my subscribers often say that they enjoy the most. Join us and profits with us today.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief