Nvidia surprised positively and it soared in overnight trading as well as in the early market trading.
And while it managed to take stocks higher, it didn’t take gold higher. Let’s investigate.
The S&P 500 index futures are up, and they moved close to their previous highs without breaking them. In other words, it’s “here we go again” on the stock market. Will stocks be able to break above 5,000 and hold this breakout this time?
Given the positive sentiment resulting from Nvidia’s good earnings, it’s a tough call. Stocks could actually have the capacity to move even higher on the new-paradigm (AI) hopes – just like they rallied in 2000. Either way, the top is likely near, but… That’s not even the most important thing from the point of view of the precious metals investors and traders. Quoting my yesterday’s intraday Gold Trading Alert:
What does it mean going forward? It means that NVDA will either decline here anyway after the initial run-up – based on the technical reasons that I commented on today and yesterday – leading to stock market’s sell-off, OR it could mean that NVDA can rally some more before declining (as no stock moves up or down in a straight line, even the most popular AI stocks).
In case of the former scenario, miners would be likely to get a bearish push pretty much right away.
In case of the latter scenario, miners would be likely to decline at their own, more moderate pace, just as they’ve been declining so far this year.
In other words, the implications for us are not THAT important – the decline and a move to our target level could be postponed by several days, but it’s highly unlikely that Nvidia’s good earnings would be able to prevent that decline from materializing at all.
In other words, the profits on our short positions in the GDXJ are likely to increase, anyway.
Overall, not much happened on the precious metals market yesterday – stocks moved a bit lower, so did silver, and gold was rather flat.
In today’s pre-market trading, we see that gold once again tried to move above its 50% Fibonacci retracement, and it once again failed.
That’s yet another reversal from above this retracement, proving that the retracement is providing strong resistance.
The strongest proof of a top in gold being formed comes from the link between gold and the USD Index. Here’s what’s happening in the latter:
In the overnight trading, the USD Index moved sharply lower, and then it moved back up. The reversal is important and bullish on its own, but the key thing comes from the analysis of the strength of both intraday moves.
Gold moved just a little higher, while the USDX moved lower by a lot. Gold is simply not willing to rally from those levels.
And moving back to how the situation is bullish for the USD Index and bearish for gold on its own – today’s early reversal perfectly fits what I already wrote previously about the shape of the USD Index’s pauses and their characteristic:
The pauses that we saw since this rally started took between 9 and 12 trading days and there was a distinct volatile intraday action close to its middle. We saw this kind of action also recently – I marked all of them with red arrows.
The history appears to be rhyming and… Yesterday was the [thirteenth] day of the decline. We already saw the analogy in terms of the intraday volatile spikes. If the analogy in terms of time also continues (and it’s likely to) then today or tomorrow could the final days of the decline and ones that start another move higher in the USD Index.
Please note that the USD Index used to end the consolidations with a fake decline – I marked them with green arrows. [The current overnight] decline appears to be in perfect tune with what we saw previous before the short-term rallies.
Based on the above, it seems that we’re in a situation that’s similar to what we saw in early February.
And what did gold do at that time?
It topped.
Gold was after a four-day rally and it formed top, after which it was declining for about two weeks.
Right now, gold is also after a four-day rally that took it to the 50% retracement based on the previous decline, and we finally saw some overnight weakness in the very near term.
What’s next? If the USD Index rallies here, based on its own technical indications or perhaps based on general stock market’s decline, gold price would be likely to fall.
With lower gold prices and lower stock prices, junior mining stocks would be likely to truly plunge, thus increasing our profits from the current trading position. This is the most likely outcome for the following days in my view.
Then, with gold a bit below the recent lows, a buying opportunity could emerge.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief