Gold and miners rallied yesterday, but that was not the key action that happened. The key events happened in the USDX.
Let’s still start with the former.
Gold moved higher despite their two daily reversals, which was an unlikely move. It happened as gold was pretty much forced to rally, given the move lower in the USD Index.
Now, whether this move higher is sustainable or not is a different matter completely. The fact that gold has already moved lower in today’s pre-market trading suggests that this is not where gold really wants to go.
How come? Gold closed above the rising resistance line for just one day, while the USD Index declined significantly, and today, gold is down even though the USD Index moved even lower. This means that gold is “fed up” with rallying, and it’s waiting for a trigger to move lower. And it’s about to get it.
The situation in junior mining stocks has “THIS IS A TOP” written all over it.
The above hourly chart shows just how strong the current combination of resistance levels really is. The GDXJ is – at the same time – at the upper border of its rising trend channel and at its July high. The small breakout above this high was previously invalidated, so the same fate likely awaits the GDXJ also this time.
Of course, all the above is on top of what I already wrote about miners, gold, and silver in my previous Gold Trading Alerts.
Moving on to the trigger and to the main part of today’s analysis – let’s take a look at the USD Index.
I mentioned both in one sentence because the trigger for the precious metals market is likely to come from the USD Index (and from the general stock market, but I’ll write more about that tomorrow).
In fact, this trigger is almost already here. Let’s check the facts:
- The USD Index is after a sizable, short-term decline, which caused it to be very oversold in RSI terms.
- The last two times, when the RSI was similarly oversold, immediately preceded bottoms and rallies (including the yearly bottom).
- The USD Index is slightly above the all-important 100 level, which serves as strong support due to psychological reasons (everyone notices it as it’s a perfectly round number).
- The USD Index is at its previous bottoms – each time the USD Index got close to the current levels in 2023, it then bottomed and rallied.
- It’s very close to the turn of the month, and the USD Index has a strong tendency to reverse its course close to those moments (as marked with blue dashed lines). Since the last move was to the downside, the reversal has bullish implications.
There is one additional clue on the long-term chart.
It’s the rising, long-term support line that started in 2011. It was reaching this line that triggered the reversal and caused the yearly bottom to form. Precisely, the USD Index broke slightly below this line, and it was the invalidation of the breakdown that created the bottom.
The USD Index is EXACTLY in the same position right now!
Due to all points listed below the USD Index’s short-term chart, the U.S. currency is very likely to rally, at least in the short run. This, in turn, means that it would invalidate the breakdown below the rising, long-term resistance line, just like it did at the 2023 bottom, thus flashing a similar, long-term buy signal.
This is a profoundly bullish combination, even though it might be difficult to view it as such, when focusing on the last few days’ performance.
Since gold is now willing to decline even while the USDX is moving lower… Gold is likely to truly plunge (and the same goes for other commodities, like natural gas) when the USD Index finally rallies. And it looks like both are about to take place.
There are more reasons for the situation to change drastically soon, and what I wrote about it previously remains up-to-date:
- So, when will those declines finally take place?
At this time, I wouldn’t be surprised to see them really begin early next year. The reason is that they are quite likely to be correlated with the declines on the general stock market (note: Paul is preparing to take profits from his long positions in stocks), and… Wall Street pros want their yearly bonuses, don’t they?
As the performance is often assessed in yearly terms, and most funds / asset management companies are invested in stocks (and are not shorting them), it’s in their best interest not to see significant slides before the end of the year (three more sessions including today’s one). Once we have the final yearly price, it seems that the prices of stocks can “be allowed to” slide. And the same goes for the prices of precious metals and mining stocks.
(…)
Have you considered buying gold recently? Like to the point of searching for it online?
Because many people have.
As you can see on the above Google Trends screenshot, the searches for “how to buy gold” just soared, and it’s not the first time that it happened.
Makes one wonder… What happened to gold price in those other cases?
After all, whatever circumstances triggered this jump in the interest in the topic, they are taking place all over again. I don’t mean the state the world is in – I mean the sentiment among gold investors. By estimating the latter, we can also estimate what’s likely to happen to the price, because… The history tends to rhyme, and people’s emotional reactions to what the market is doing remain more or less the same, regardless of the details of the fundamental situation.
I marked one of the moments on the above chart and here are the other notable peaks:
So, what happened to gold price on those occasions?
I marked all-above-mentioned cases with blue, dashed lines and in three out of four cases those were the MAJOR tops. Ones that were followed by hundreds-of-dollar declines in the price of gold.
The only remaining case was when it was still the end of a short-term rally and the start of a pause (that took gold about $100 lower, anyway). This time was truly exceptional, though, because it was right after the covid-scare bottom – it was not a regular course of action.
So, I’d say that in all “regular” cases, the huge increase in interest in buying gold translated into huge declines in the following months. After all, people tend to buy at the tops – that’s exactly what this sentiment analysis proves.
We are at this stage one more time (in many other stocks, too, including some oil stocks). Once again, it’s difficult NOT to buy into the euphoria, even though looking at the situation from a broad perspective practically “screams” WATCH OUT.
Now, you are informed, you are prepared.
And I will continue to keep you – my subscribers – up-to-date, so that what surprises most investors, will not surprise you, but that it will benefit you. We’re on a streak of 11 profitable (unleveraged) trades, after all, and it’s VERY likely that the current trades will increase this streak soon.
= = =
On a side note, the two previous links will take you to the latest free oil and stock market articles, but if you’d like to check out their premium versions, there are currently 7-day free trials available for both of them (note: they were both revamped, so I really encourage you to give them a go). Since there’s still a 10% discount for the Diamond Package (including Gold-, Oil-, and Stock Trading Alerts), the best course of action would be to take both free trials and if you like what you see, upgrade to Diamond before the 7 days pass, to reap the extra discounts (one is the regular bundle-offer discount, and on top of that there’s the above-mentioned 10% one. For maximum benefits you could go with a yearly subscription or a longer one, though.) Sign up for those free trials here: Oil Trading Alerts - free trial and Stock Trading Alerts - free trial.
= = =
If you’d like to become a partner/investor in Golden Meadow, you’ll find more details in the above link.
Overview of the Upcoming Part of the Decline
- It seems that the recent – and probably final – corrective upswing in the precious metals sector is over.
- If we see a situation where miners slide in a meaningful and volatile way while silver doesn’t (it just declines moderately), I plan to – once again – switch from short positions in miners to short positions in silver. At this time, it’s too early to say at what price levels this could take place and if we get this kind of opportunity at all.
- I plan to switch from the short positions in junior mining stocks or silver (whichever I’ll have at that moment) to long positions in junior mining stocks when gold / mining stocks move to their 2020 lows (approximately). While I’m probably not going to write about it at this stage yet, this is when some investors might consider getting back in with their long-term investing capital (or perhaps 1/3 or 1/2 thereof).
- I plan to return to short positions in junior mining stocks after a rebound – and the rebound could take gold from about $1,450 to about $1,550, and it could take the GDXJ from about $20 to about $24. In other words, I’m currently planning to go long when GDXJ is close to $20 (which might take place when gold is close to $1,450), and I’m planning to exit this long position and re-enter the short position once we see a corrective rally to $24 in the GDXJ (which might take place when gold is close to $1,550).
- I plan to exit all remaining short positions once gold shows substantial strength relative to the USD Index while the latter is still rallying. This may be the case with gold prices close to $1,400 and GDXJ close to $15 . This moment (when gold performs very strongly against the rallying USD and miners are strong relative to gold after its substantial decline) is likely to be the best entry point for long-term investments, in my view. This can also happen with gold close to $1,400, but at the moment it’s too early to say with certainty.
- The above is based on the information available today, and it might change in the following days/weeks.
You will find my general overview of the outlook for gold on the chart below:
Please note that the above timing details are relatively broad and “for general overview only” – so that you know more or less what I think and how volatile I think the moves are likely to be – on an approximate basis. These time targets are not binding nor clear enough for me to think that they should be used for purchasing options, warrants, or similar instruments.
Letters to the Editor
Q: PR, I hope you are right with your call for bearish pm and bullish DXY. But did you take into account the move in treasuries? If yields keep dropping as per the fed’s projection, how can the DXY move meaningfully higher?
A: The Fed has been using their comments as yet another monetary policy tool. I think that instead of saying what they think, they are saying what they want the market to react to. In this case, projecting lower rates, makes the market react as if they already lowered the rates.
Now, yields or interest rates themselves are particularly important when examined together with (expected) inflation – in real terms.
Essentially, it’s about the interest that people real-ly get above the inflation rate.
If it’s positive, then holding assets that don’t provide interest is not that attractive, but if it’s negative, so inflation is bigger than the nominal interest, then holding assets that protect against inflation is preferred.
The below chart shows the 10-year real interest rate.
It’s still well above 0, meaning that there’s pressure to sell gold.
Real rates are one of the two primary fundamental drivers of gold prices. The other is the USD Index. And I have already written about the technical situation in the latter.
Lower interest rates might indeed be bearish for the USD Index, but let’s not forget that the U.S. dollar does not operate in isolation. Its value is compared to the values of other currencies. The two biggest components of the USD Index are the euro and the Japanese yen. So, if the interest rates decrease in the USD Index, but they also decrease in the Eurozone or in Japan, the USD Index does not have to be affected. And if the rates in the Eurozone and/or Japan are cut more/faster than in the U.S., then the USD Index could even rally based on those dynamics.
The beauty of technical analysis is that it takes all the above info-account through the expectations, analysis and emotions of market participants. It’s all reflected in the prices (and volume), which we then analyze. Therefore, what we analyze on the charts takes into account multiple factors, including the complex nature of the relationship between interest rates and currency valuation.
===
Depending on the nature and target group of your question, feedback, or comment, please use the following means of communication:
- For questions or comments that you’d like to get the Community’s response, please use the Ask the Community space so others can contribute to the reply and also enjoy the answers.
- For questions, comments, or feedback that you’d like me to comment on / reply to, please send them to Golden Meadow’s support – some clarifications can be provided directly by our experienced support team, and those that are strictly for me, will be forwarded to me and I’ll then provide replies either individually, or in the “Letters to the Editor” section in the Alerts, depending on the nature of the question/comment.
Summary
To summarize, the key thing about the precious metals market is still gold’s extremely important weekly reversal that we saw two weeks ago, which puts the recent (even today’s) rallies in the proper context. What we see now is a perfectly normal post-initial-decline rebound. These moves used to take gold back up to the 50% - 61.8% (approximately) retracements based on the initial size of the decline, and given today’s upswing, gold futures are now a bit above the 50% retracement. Again, this is normal.
The invalidation and reversal that we saw in junior miners, as well as gold’s own reversal, suggest that the top is in.
The peak in interest in “how to buy gold” searches makes the current situation even more bearish, as this has been a very accurate detector of massive, medium-term tops.
===
As we’re on a streak of 11 profitable (closed, unleveraged) trades, and – just like I wrote today and in the previous days – it looks like we’re going to see many more of them in the near future, I want to provide you with even more great news!
We’re opening the possibility of extending your subscription for up to three years (at least by one year) with a 10% discount from the current prices.
Locking in those is a great idea not only because it’s the perfect time to be ready for what’s next in the precious metals market but also because the inflation might persist longer than expected, and prices of everything (including our subscriptions) are going to go up in the future as well. Please reach out to our support – they will be happy to assist you and make sure that your subscription days are properly extended at those promotional terms. So, for how many years would you like to lock in your subscription?
This 10% discount (and the ability to subscribe for up to three years) also applies in case of the just-released Diamond Package that includes not only Gold Trading Alerts, but also Oil Trading Alerts and Stock Trading Alerts. This package provides access with an additional (bundle-offer) discount, and it’s the most prestigious product that we have in our offer. Be sure to use the “DIAMOND10” code when going Diamond for the 10% discount.
To summarize:
Trading capital (supplementary part of the portfolio; our opinion): Full speculative short positions (300% of the full position) in junior mining stocks are justified from the risk to reward point of view with the following binding exit profit-take price levels:
Mining stocks (price levels for the GDXJ ETF): binding profit-take exit price: $28.12; stop-loss: none.
Alternatively, if one seeks leverage, we’re providing the binding profit-take levels for the JDST (2x leveraged). The binding exit level for the JDST: $10.54; stop-loss for the JDST: none.
For-your-information targets (our opinion; we continue to think that mining stocks are the preferred way of taking advantage of the upcoming price move, but if for whatever reason one wants / has to use silver or gold for this trade, we are providing the details anyway.):
Silver futures downside exit price: $20.22 (stop-loss: none)
SLV exit price: $18.62 (stop-loss: none)
ZSL exit price: $24.98 (stop-loss: none)
Gold futures downside exit price: $1,812 (stop-loss: none)
Spot gold downside exit price: $1,792 (stop-loss: none)
HGD.TO – alternative (Canadian) 2x inverse leveraged gold stocks ETF – the exit price: $8.43 (stop-loss: none)
HZD.TO – alternative (Canadian) 2x inverse leveraged silver ETF – the exit price: $19.49 (stop-loss: none)
///
Optional / additional trade idea that I think is justified from the risk to reward point of view:
Short position in the FCX with $27.13 as the short-term profit-take level.
Long-term capital (core part of the portfolio; our opinion): No positions (in other words: cash)
Insurance capital (core part of the portfolio; our opinion): Full position
Whether you’ve already subscribed or not, we encourage you to find out how to make the most of our alerts and read our replies to the most common alert-and-gold-trading-related-questions.
Please note that we describe the situation for the day that the alert is posted in the trading section. In other words, if we are writing about a speculative position, it means that it is up-to-date on the day it was posted. We are also featuring the initial target prices to decide whether keeping a position on a given day is in tune with your approach (some moves are too small for medium-term traders, and some might appear too big for day-traders).
Additionally, you might want to read why our stop-loss orders are usually relatively far from the current price.
Please note that a full position doesn't mean using all of the capital for a given trade. You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.
As a reminder - "initial target price" means exactly that - an "initial" one. It's not a price level at which we suggest closing positions. If this becomes the case (as it did in the previous trade), we will refer to these levels as levels of exit orders (exactly as we've done previously). Stop-loss levels, however, are naturally not "initial", but something that, in our opinion, might be entered as an order.
Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main markets that we provide these levels for (gold, silver and mining stocks - the GDX ETF), the stop-loss levels and target prices for other ETNs and ETF (among other: UGL, GLL, AGQ, ZSL, NUGT, DUST, JNUG, JDST) are provided as supplementary, and not as "final". This means that if a stop-loss or a target level is reached for any of the "additional instruments" (GLL for instance), but not for the "main instrument" (gold in this case), we will view positions in both gold and GLL as still open and the stop-loss for GLL would have to be moved lower. On the other hand, if gold moves to a stop-loss level but GLL doesn't, then we will view both positions (in gold and GLL) as closed. In other words, since it's not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can't provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the signs pointing to closing a given position or keeping it open. We might adjust the levels in the "additional instruments" without adjusting the levels in the "main instruments", which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets. We are already working on a tool that would update these levels daily for the most popular ETFs, ETNs and individual mining stocks.
Our preferred ways to invest in and to trade gold along with the reasoning can be found in the how to buy gold section. Furthermore, our preferred ETFs and ETNs can be found in our Gold & Silver ETF Ranking.
As a reminder, Gold & Silver Trading Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent, we will send you an additional small alert before posting the main one.
===
On a side note, while commenting on analyses, please keep the Pillars of the Community in mind. It’s great to provide points that help others be more objective. However, it’s important to focus on the facts and discuss them in a dignified manner. There is not much of the latter in personal attacks. As more and more people join our community, it is important to keep it friendly. Being yourself, even to the point of swearing, is great, but the point is not to belittle other people or put them in a position of “shame” (whether it works or not). Everyone can make mistakes, and everyone does, in fact, make mistakes. We all here have the same goal: to have a greater understanding of the markets and pick better risk-to-reward situations for our trades. We are on the same side.
On another – and final – side note, the number of messages, comments etc. that I’m receiving is enormous, and while I’m grateful for such engagement and feedback, I’m also starting to realize that there’s no way in which I’m going to be able to provide replies to everyone that I would like to, while keeping any sort of work-life balance and sanity ;) Not to mention peace of mind and calmness required to approach the markets with maximum objectivity and to provide you with the service of the highest quality – and best of my abilities.
Consequently, please keep in mind that I will not be able to react / reply to all messages. It will be my priority to reply to messages/comments that adhere to the Pillars of the Community (I wrote them, by the way) and are based on kindness, compassion and on helping others grow themselves and their capital in the most objective manner possible (and to messages that are supportive in general). I noticed that whatever one puts their attention to – grows, and that’s what I think all communities need more of.
Sometimes, Golden Meadow’s support team forwards me a message from someone, who assumed that I might not be able to see a message on Golden Meadow, but that I would notice it in my e-mail account. However, since it’s the point here to create a supportive community, I will specifically not be providing any replies over email, and I will be providing them over here (to the extent time permits). Everyone’s best option is to communicate here, on Golden Meadow, ideally not in private messages (there are exceptions, of course!) but in specific spaces or below articles, because even if I’m not able to reply, the odds are that there will be someone else with insights on a given matter that might provide helpful details. And since we are all on the same side (aiming to grow ourselves and our capital), a ton of value can be created through this kind of collaboration :).
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief