Gold might have formed the final top yesterday, or it could still take place on Monday. Or we saw one today.
Everything that I wrote about it in yesterday’s analysis remains up-to-date.
There was an intraday reversal yesterday, but there might be a final one still ahead.
Depending on which intraday high we use to create the upper part of the triangle, we get either today or Monday as the vertex. To be super-precise, that second vertex falls between Friday and Monday, but since there’s no trading over the weekend, it seems that the most useful interpretation is that we’re very likely to see declines next week.
However - after digging deeper into this - if I had to choose which of those triangles is more likely to be the final top, my vote would go for Monday. It is not based on the above chart but based on the below 4-hour chart.
Looking at price moves from this point of view provides a top that’s about 30-40 hours away – this suggests that it might form on Monday (…)
Please keep in mind that the above chart features gold continuous futures contract which is trading almost 24 hours per day during business days. This means that we might see a peak in it before the stock market opens in the U.S., which in turn means that miners could open lower on that day and even though in gold futures the top would be on that day, it might already be after the top in case of the mining stocks. Those who are generating income from their gold don’t necessarily need to worry about that, but those aiming to trade the gold market should watch out.
The copper futures point to something similar – it seems that the declines are about to start.
Copper futures broke above the 61.8% Fibonacci retracement and the late-2024 high, but they already moved back below both. [On a side note, while preparing this analysis, I changed this sentence three times as copper started to slide.]
Besides, it’s based not just on copper itself, which previously reversed from similar price levels, but also on the performance of the FCX – the flagship laggard that rallied significantly this week.
I wrote many times before that this is what tends to happen when the rallies end – laggards catch up. There’s no doubt that FCX has been a laggard.
In other words, while I can't guarantee any rate of return, it seems to me that the trading opportunity in the FCX remains intact. In fact, it seems even better than before as copper is now likely to decline from higher levels, which means that its decline has more room before it encounters very strong support.
And now, for the most important sign – silver’s crystal-clear very short-term outperformance.
While gold is down by 1.2% at the moment of writing these words, silver is up by 1.5%. When silver outperforms gold after a rally, it’s a very reliable confirmation that the top is in or at hand.
That’s not the only thing that’s special about the white metal. The other technical detail is that it tends to fake its breakouts right before sliding. That’s what we saw today – it had rallied strongly above the red line and previous highs, and it already managed to invalidate this breakout.
It’s now VERY likely that the top is in or at hand.
It’s tempting to write about shorting silver (or even gold) here, but I’ll stick to shorting mining stocks and FCX – we already have sizable positions, and keeping risk intact is important.
As far as the precious metals sector is concerned - and mining stocks in particular – please keep in mind that the way gold, silver, and miners perform right now is very similar to what we saw in 2011.
Sharp rally to new highs in gold, smaller rally and not to new highs in silver, and a head-and-shoulders pattern in the GDXJ – that’s exactly what we see right now, with the only difference being that in 2011, we had lower lows and lower highs while the H&S pattern was formed, and this time, we have higher lows and higher highs. But overall, miners and silver still underperform.
The dashed lines are parallel – GDXJ is forming the right shoulder for the broad H&S pattern. Some might say that it has a one big left shoulder and some will say that there are several left shoulders, but it really doesn’t matter. Both forms of the H&S pattern are acceptable. We have a one distinct high (the head) and we have an overall declining volume during the pattern.
Given gold’s turning point, the panic-led nature of the most recent upswing (we’re running out of gold!), miners’ underperformance (no breakout above the 2024 high), and the overall similarity to 2011, it seems that the top is at hand, and we are well positioned to take advantage of it.
Of course, this comes on top of the other indications that I discussed in the previous Gold Trading Alerts.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief