The markets might have been whispering, but now they are screaming. Many of them at the same time.
“What is this guy so excited about” is what many people not familiar with the concepts of technical analysis might say, and the thing is that this is true for most investors in general. They won’t realize what’s going on until it’s waaay after the big chunk of the decline.
The current situation is extreme (and so is the opportunity) because gold just proved its inability to soar above the previous highs in a crystal-clear manner. Despite the Trump’s-failed-assassination-based rally, gold was not able to hold on to its gains. It declined below the previous highs and below the $2,400 level.
It invalidated its breakout to new highs in terms of intraday highs, daily closing prices, AND weekly closing prices. The above chart shows the latter. I also marked what happened after two other notable weekly shooting star patterns in gold. It declined significantly.
On the above chart, we can take a better look at Friday’s $50+ decline, and we can see how well the final top aligned with the triangle-vertex-based reversal that I’ve been writing about for some time now. Gold was likely to reverse in mid-June, and that’s exactly what (approximately) happened.
The invalidation of the move to new highs and the big-volume shooting star reversals (in daily and weekly terms) creates an extremely powerful bearish combination. And this would likely be enough to justify short positions in gold at this time. But there’s so much more!
The HUI Index just moved back below its 61.8% Fibonacci retracement level based on the 2020 – 2022 decline – the move above this line was invalidated as well. This is bearish, not only on its own, as a comeback below this retracement means that the recent move higher was just a correction, not the start of a new rally.
This is also bearish, because similarity to what we saw in 2012 and in 2008 before the slide remains intact.
Moreover, the HUI Index is once again below the 38.2% Fibonacci retracement based on the 2011 – 2016 decline (marked with grey). All previous attempts to move above this retracement were invalidated, and so was the very recent one. Gold stocks remain in a long-term downtrend as the 2016 – 2024 price action appears to have been just a correction within it.
And you know what happened in the USD Index while gold plunged at the end of the week?
Very little.
Yes, the USD Index rallied on Thursday and Friday, but the size of the rally was not significant – at least not compared to the size of the July decline. And at least not yet.
Before I show you USD Index’s long-term chart that explains why the “yet” part makes so much sense, I’d like you to focus on the recent move in the RSI indicator (upper part of the chart). It just bottomed close to 30. This occurred only twice before this year. The first time was at the beginning of the year, and the second time was at the March bottom. In both cases, the USD Index rallied substantially in the following weeks.
This is really important because since gold was able to decline so much with very little help from the USDX, it can truly plunge once this help arrives.
And would you look at the time…
It looks like it’s high time for the USD Index to rally (in a meaningful way), as it often forms major bottoms in the middle of the year. I marked it with red, dashed lines.
Looking at other markets, we see that things are changing as well.
Copper just broke to new lows after correcting the decline from the May top. This move to new lows indicates that this market is ready to slide further. Once the breakdown to new lows gets confirmed, it will be even more likely.
The FCX – copper and gold producer – stayed below the neck level of the head-and-shoulders pattern and the move below the neck level thereof is almost confirmed. This opens the door to even bigger declines.
Also, something really interesting happened in the Dow Jones Industrial Average.
The Dow just formed a critical reversal. Stocks moved up significantly last week, and then they erased almost all of those gains. This reversal confirms the ones in gold, and in gold stocks.
The GDXJ invalidated its move above its previous high, just as gold did, confirming those price moves.
Silver invalidated another attempt to break above the 2020 and 2021 highs as well as the $30 level – another important sign of what’s about to happen. Declines.
What does it all mean?
It means that if one has been waiting on the sidelines to see how things play out or they were waiting for more confirmations for exiting long positions or entering short positions in junior mining stocks or gold (or adding to them, or re-entering them if they got closed previously), THIS IS IT.
There are no certainties in any markets, but – in my opinion – the short-term combinations that come on top of the strong medium- and long-term indications that I’ve been describing previously create a truly superb opportunity right now.
Thank you for reading my today’s free analysis. If you’d like to read more and stay up-to-date with the quick trades, intraday Alerts, and all the key details that my subscribers are getting, I invite you to sign up for my Gold Trading Alerts or the Diamond Package that includes them. Alternatively, please sign up for my free gold newsletter today.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief