Gold just broke below the first of the important support lines!
Yesterday, while gold was still trading above this line, I commented on the likely upcoming breakdown in the following way:
Gold futures are moving lower today, but not – yet – significantly so.
The rising short-term support line is less than $20 away – at about $2,640. A breakdown below this line would clearly confirm that the top in gold is in, and that lower – probably much lower – gold prices would be likely.
Don’t get me wrong – the outlook is already bearish but seeing this technical confirmation would make the outlook clearer for more people, that could contribute to the decline – the opposite of what is likely for the USD Index.
That’s what happened, and the breakdown is even clearer on the 4-hour candlestick chart.
It’s not confirmed yet, but the fact that gold moved lower yesterday without USD Index’s help makes it likely that gold will confirm the breakdown and decline further.
I previously wrote that gold’s reaction to USDX’s rally might be delayed, and that’s exactly what we see.
As I explained yesterday, the U.S. dollar is most likely just starting its big upswing, so gold has much further to fall.
On a short-term basis, we see that the USDX consolidated after rallying sharply last week, and that’s perfectly normal. Pauses or “breathers” are what allows the market to prepare for another powerful upswing.
The important fact about the pause is that it’s the absence of an immediate decline that could erase the previous rally. The new – higher – price levels might have seemed “excessive” previously, but as the time passes, they start to feel “normal”. This allows investors and traders to expect even higher prices and position themselves, accordingly, eventually triggering the rally.
Meanwhile, the copper price declines once again today, further confirming that the top is in.
As far as junior mining stocks are concerned, I’d like to emphasize one simple fact.
The GDXJ is now trading more or less where it traded at its May top.
For some reason, it might seem as if junior miners are higher – nope, they’re not. Even though gold is hundreds of dollars higher, our main short position is not visibly higher. In fact, it’s close to its May highs and below its July and August highs.
As gold declines further, GDXJ is likely to slide below its May highs, and then below its September, Just and May lows. And then below April lows, too.
Why did the GDXJ reverse before the end of the session yesterday? Most likely due to the daily rally in the other stocks.
The S&P 500 moved higher yesterday, but it seems that this rally might – finally – turn around. Literally – the triangle-vertex-based turning point was yesterday, so it would be natural for stocks to turn south today or later this week.
We’ll see. There are many valuations and analogies to past patterns suggesting that stocks should plunge – and we have indications from other stock market indices, like HSI, however, there were many false flags about stocks’ sell-off, so I’m a bit skeptical about the current one. But since the GDXJ declines anyway (it declined while stocks were trading sideways), we’re in a situation in which GDXJ declines in a rather regular manner, or it truly slides. Either way, we’re likely to benefit, and we have a good chance that we’ll see some positive surprises soon.
Thank you for reading my today’s free analysis. Its full version – the Gold Trading Alert – also includes the short-term details that traders would find particularly useful. If you’d like to get those details (along with profit-take levels for our positions), I encourage you to become our subscriber today. Alternatively, if you’re not ready to subscribe yet, I encourage you to sign up for my free gold newsletter today.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief