Yes, it could be a process and not a sharp U-turn. And we’re likely seeing the start thereof.
Gold price (precisely: gold futures) moved lower yesterday, and it even moved temporarily below $2,000. Gold ended the day a few dollars above the $2k mark, but it was still the lowest close of 2024 so far.
Now, the question is – did gold’s move back up mark the bottom for this short-term decline?
In short, this could be the case, but it seems more likely that we’ll see another short-term move higher before gold rallies.
Why? Because the really strong (from the short-term point of view) support was not yet reached. It’s at the Dec. 2023 low, which also corresponds to the 50% Fibonacci retracement based on the 2023 rally.
Gold’s yesterday’s reversal might suggest that the sharp decline is over, but when we look at the previous short-term bottoms (marked with black rectangles), it turns out that the bottom can take up to several days to form, oftentimes with lower intraday lows.
Consequently, it would be quite natural for the gold price to first move even lower from the current price levels and form a short-term bottom then – close to $1,990.
Today’s intraday action (chart courtesy of GoldPriceForecast.com) confirms it.
Silver is outperforming gold on a very short-term basis, and if you’ve been following my analyses for some time, you know that this is a classic sell signal. It often works immediately, and if not then it tends to work soon (within days), anyway. This indication helped to time tens, if not hundreds of tops in the past, and it’s pointing to the same kind of action right now as well.
Moreover, it’s quite frequently the case that the USD Index provides triggers for gold price.
Right now, the USD Index is after a breakout above its mid-2023 high, and this breakout is being verified. To clarify, yesterday was the second session when the USD Index closed above the highest close of the mid-2023 top.
Some will say that the breakout was already verified, while others will prefer to wait for the third daily close above the previous high in daily closing price terms. Either way, the implications of the breakout are bullish.
Sure, the USDX is close to being overbought, as indicated by the RSI (it’s close to 70), which means that after another rally, the USDX would be likely to correct. But this implies that a correction could happen after an additional short-term upswing – one that could push gold lower in the near term.
This would be a short-term buying opportunity for those interested in the precious metals market. In my opinion, the biggest opportunity is in the junior mining stocks – also in case of the rebound, because the technical picture for them creates reliable bottoming and topping (for the following counter-trend rally) targets.
Speaking of mining stocks, something very interesting is happening to their prices when we compare them to the prices of the S&P 500 Index.
The HUI Index (proxy for gold stocks) to the S&P 500 Index ratio just broke below its multi-year lows in a decisive manner.
Last time we saw something similar was in late 2012 and in early 2013 – and that heralded huge declines.
While this breakdown might not have direct implications for the next several days (and a short-term corrective upswing is still in the cards), this decisive move tells you that the wild ride lower has already begun – it’s just not clear to most investors yet.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief