Confused by the back-and-forth move in gold? It’s actually quite simple.
Gold broke below its rising support line, and it’s now verifying this breakdown by moving back to this line and taking a breather in general. This is a completely normal post-breakdown phenomenon.
The important thing is that gold remains below the rising line – this means that after the current breather, gold is most likely going to slide once again.
Please note how perfectly gold reversed after reaching the rising resistance line during yesterday’s session – it didn’t move beyond this line.
Today is the third day when gold is likely to close below its rising support/resistance line, which means that the breakdown is about to be confirmed. The implications will be very bearish.
Silver confirms the above. Based on the silver price (non)movement, it’s clear that what we see is just a pause.
The USD Index is also moving back and forth, but on an intraday basis, gold once again moves in the opposite direction to the one in which the dollar is moving.
This means that the current pause in the USD Index is bearish for gold, as this pause is likely to be followed by further gains in the USDX, which in turn, is likely to translate into lower gold prices.
And let’s not forget that the rally in the USD Index is still likely in its early stages.
The USDX is after a medium-term breakout above the declining resistance line. And as the stock markets decline, the world is likely to turn into its safe-haven currency – the U.S. dollar.
Speaking about stock markets, it was just yesterday when I commented on tech stocks in the following way:
NASDAQ rallied sharply, but… Just like what we saw in case of the S&P 500 Index, tech stocks’ rally was in perfect tune with what we saw after previous major tops. In this case, the analogy is to what we saw in early 2022.
Back then, after the initial slide, stocks moved back up quickly but this move higher was extremely short-lived. As the previous rally was almost immediately followed by big declines, it’s difficult to view the current one as something bullish.
Interestingly, 2022 was when the GDXJ also fell substantially. That didn’t happen right away (when stocks declined initially), but there was a good reason for it – that’s when gold soared based on the increased tensions and uncertainty around the Ukraine. After the Russian invasion, when the uncertainty decreased, gold declined, and junior miners plunged.
This time, gold price is likely already after the top, so the negative impact from the stock market is likely to affect junior miner prices shortly, without the 2022-style delay.
History rhymed – NASDAQ just fell by about 2% today, which is in perfect tune with what we saw in early 2022.
Gold is taking a breather, so it’s no wonder that we’re also seeing one in the case of mining stocks, but as gold AND stocks decline more, junior miners are likely to truly slide.
Also, remember how I wrote that after bitcoin’s halving, its price might move briefly higher and then decline in a big way?
That’s what we saw this week, at least so far. We saw a small move higher that was then followed by another decline.
And now, with declining stock and rallying USD Index, the two alternatives to the latter: gold and bitcoin are likely to decline in value.
Of course, gold will soar to new highs eventually (I’m not that sure about bitcoin), but I do think that with sliding stocks and soaring dollar, gold will need to decline profoundly first. And the declines in silver as well as in mining stocks (in particular junior miners!) are going to be even bigger.
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