What a powerful sign from gold and the USD Index!
It was just yesterday when I wrote that the gold-USD link is likely to be back and that gold can decline even without USD’s rally or during its consolidation, and yesterday’s session already confirmed that this is indeed the case.
Gold did erase its overnight declines – that’s true, but that’s not the key thing about yesterday’s session. The key thing is that gold ONLY retraced the declines while the USD Index declined in a visible way. This means that:
- Gold price reacted to what happened in the USD Index
- Gold price’s reaction to what happened in the USD Index showed gold’s weakness at the moment.
Besides, due gold yesterday’s comeback, gold simply verified the breakdown below its rising support line.
Gold price moved below the rising support line, then moved back to it, and then moved lower once again – that’s exactly how breakdowns’ verifications are supposed to look like.
The fact that gold is down once again today – and not back above the rising support line – makes the current set-up bearish.
On April 17, I wrote the following:
The USD Index is after a big short-term upswing, and the RSI based on it is above 70, suggesting a pullback, but taking a closer look at how things developed after a similar situation in the RSI (marked with orange rectangles), it seems that we might only see a pause that’s then followed by more rallies.
When we saw something like that in September 2023, gold and silver moved sideways, and then they declined when the USDX resumed its upward march.
Let’s not forget that the overbought status concerns the short-term picture only. From the long-term point of view, the rally is likely just getting started.
The USD Index corrected at bit, but gold and silver didn’t simply “move sideways”, but rather they declined in a visible manner. Yesterday’s corrective move back up in gold was in perfect tune with the “pause” possibility, while being bearish at the same time, because it was just a verification of the breakdown.
Plus, let’s not forget that back-and-forth movement while declining overall is typical for gold after its major tops.
We saw that in 2011.
We saw that in 2016.
And we saw that (on an intraday basis, but still) in 2020.
After the back-and-forth type of decline, it tends to take a more decisive form, and gold slides without looking back.
This kind of price move (a more decisive slide) is likely to take place soon.
It seems that the major tide is here in the case of currencies (USD/YEN!), stocks (tech stocks, broad market), bitcoin, and precious metals. It also seems that junior mining stocks provide an excellent opportunity right now, and I invite you to subscribe and read all key details in my premium Gold Trading Alert (along with trading details). Subscribe today.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief