The current sharp move higher in the USD is likely to affect all commodities and gold prices.
Today’s analysis is going to be brief, as I provided you with an extra analysis yesterday, and since not much happened on the market yesterday (as the U.S. markets were closed) everything that I wrote yesterday (especially regarding the implications of Friday’s session) remains up-to-date. Plus, the market is doing exactly what I wrote it would be doing.
In yesterday’s analysis, I emphasized that what’s been going on in the USD Index was particularly important.
Quoting my yesterday’s analysis of the USD Index:
Today’s session is relatively calm in gold futures, but something important is happening in the USD Index.
On Friday, the USD Index finally closed above its declining resistance line based on the 2023 highs, which was a small, but important bullish development.
The fact that the USD Index continues to move higher today instead of declining back above this line is suggesting that the consolidation is finally over.
Last week, I commented on the above chart in the following way:
“
(…) if we don’t see a breakout here, what I see as likely is consolidation’s continuation and then a successful breakout. This implies a pause in the precious metals market now, and a slide later (in a week or so).
“
That’s exactly what happened. The consolidation continued and we now saw a breakout. I’d like to see also a third consecutive close above the declining resistance line to say that the breakout was confirmed (so, today’s and tomorrow’s closes), but the situation looks promising already today as that the first time when the breakout wasn’t immediate invalidated during the same day.
By “promising” I mean that it’s promising for the USD Index, which is bearish for gold, silver, and mining stocks.
So, the risk to reward continues to strongly favor short positions in junior miners that are likely to slide particularly significantly – due to USD Index’s rally AND the decline on the general stock market. I wrote about all those markets in Friday’s extensive analysis, so I don’t want to go into details also today.
The rally that we see in today’s early trading is a natural confirmation of the breakout and also a follow-up to the symmetric nature of the recent price moves.
I previously wrote that since the price moves surrounding the recent bottom, and the consolidations that I marked with blue rectangles, it’s quite likely that the following rally would be sharp just as the mid-December decline was – this would make both moves symmetric.
So, today’s sharp rally is neither accidental, nor is it surprising to you. This is a very bearish piece of news for gold, silver, mining stocks, copper, crude oil and other commodities. The stock market could be affected as well.
Meanwhile, by moving back to it and then declining (today), gold verified the breakdown below its lower support line, just as it verified the breakout below the upper 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.
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