So, it happened. The USD Index verified its breakout in a beautiful style.
That’s really important for gold price.
This means that pretty much everything that I wrote about it in yesterday’s analysis – and in the previous analyses – remains up-to-date:
The USD Index broke higher in a decisive manner, just as I wrote previously. Quoting from my Jan. 9 analysis:
The right shoulder of the inverse head-and-shoulders formation has indeed formed. It’s even very similar in length. This means that once we see a rally here, it’s likely to be sizable – based on the size of the patterns head. In the current case, this means a rally to at least 104 or so.
The one thing preventing the USD Index from rallying right away is its declining, medium-term resistance line. Once this line is taken out, and the breakout is verified, USD Index would be free to rally. And this is exactly what appears likely at this time. Let’s keep in mind that the USD Index has just invalidated a breakdown below a long-term support line, and the last time it happened (in the middle of the year), it generated a big rally in the USDX and big declines in the precious metals sector.
That’s exactly what we saw, and the precious metals sector has indeed responded with lower prices.
Gold was down yesterday, and it’s down in today’s trading as well.
Gold was after a verified breakdown below its upper rising resistance line, and now it’s also after a verified breakdown below its lower rising resistance line.
This has profoundly bearish implications. Still, most people are not familiar with technical tools, and they will pay attention to whatever mass media provides them with.
The journalists will likely notice that something’s off when gold breaks below $2,000 and declines from there. But before the investment public is able to react to those journalists’ texts, gold might be $100 lower, and miners might be MUCH lower. And it might be time to prepare for a rebound.
Paying attention to the early signs usually has a very good rate of return on invested time.
Silver is declining this week as well, proving that last week’s run-up was just a second verification of the breakdown below the head-and-shoulders pattern.
This should be surprising at all – since the breakdown below this pattern was already verified previously, the implications were bearish all along. Since we knew that the breakdown was verified, it was quite obvious that the very recent rally was a fake move. And indeed – this week’s decline confirms it.
The next big move in silver is likely to be to the downside, and this is also – most definitely – true for junior mining stocks.
Junior miners just closed at a fresh 2024 low, which serves as yet another bearish confirmation that we’ll see lower GDXJ prices and bigger profits from our trading position in it.
The double-top pattern that I’ve been writing about for many days now, has worked once again. The medium-term downtrend has now resumed, and another short-term rally is underway.
Now, if the stock market falls substantially (!) here – which I view as likely – the decline in mining stocks is likely to be MUCH bigger than the short-term and medium-term decline that we saw in 2023.
After all, junior miners are already underperforming both markets that impact their prices to the highest extent: gold and the stock market.
Making money on the short-term and medium-term downfall is – in my opinion, of course – the most promising opportunity out there, as this move is supported by the situation in both: USD Index, and stocks, and they both appear to have big moves ahead of them. Additional benefits could be reaped by shorting other commodities like crude oil and copper (by the way, Anna’s short position in crude oil is getting more profitable as I’m writing these words), but shorting junior mining stocks is still my favorite way to benefit from USD Index’s rally (and stocks’ decline).
The above chart features a downside target of a more medium-term nature, but there is also likely to be an opportunity to take profits from the short position above it, and I’m discussing this more short-term trade in today’s Gold Trading Alert (I just moved protective stop-loss levels in it, decreasing the trading risk).
The situation in junior mining stocks currently offers an exceptional risk to reward opportunity in my view - I invite you to take the 10-day free trial of my Gold Trading Alerts and take advantage of it before it’s too late.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief