Gold price moved higher on Wednesday, and this move might be confusing. Is the pullback over? Or is this a broader top?
Let’s take a look at the charts to find out.
In short, the current situation is similar to what we saw in May, and it’s also like something that we used to see earlier this year. The March, April, and May tops were close to each other. That didn’t prevent gold from declining, and neither will it prevent gold from declining right now.
How do we know that gold is likely to decline from here and not rally, just like the USD Index? For example, because mining stocks declined recently, underperforming gold – and that’s what tends to happen before bigger declines in the precious metals sector.
Besides, the RSI based on the price of gold continues to point to an extremely overbought situation, as it’s very close to 70.
The price of gold reversed after reaching a combination of resistance levels and it declined in tune with gold’s triangle-vertex-based reversal point.
The rising and declining resistance/support line crossed last week, and that’s when the top formed.
Moreover, please note that in the last several years, gold was rather weak in November, and it was rather strong in December. This does not bode well for the gold price forecast for the next several weeks. As for December – we’ll see. Depending on how fast the gold price will slide in November and how low it will go, the December rally might turn out to be just a December correction. We’ll know more when we get closer to December.
All in all, we have quite a lot of confirmations that gold is about to move lower.
Additionally, points that I made last week about the current concern with war remain up-to-date:
The current action in the precious metal sector continues to be determined by the increasing concern/interest in war, so that’s what I’m going to start today’s chart analysis with.
The below chart features the interest in war in Google News in the U.S.
The current situation is analogous to what we saw right before and right after the Russian invasion in 2022.
Now, since the market generally “buys the rumor and sells the fact”, gold is rallying primarily based on increasing fear or uncertainty, which is connected to, but no the same thing as actual events.
This concern can be measured by how frequently the term “war” is being searched in Google (in particular, in Google News – this part of Google’s service is used to get… well, news, which helps to isolate the concern with the current conflict).
The key thing that is happening this week is that after last week’s peak, it seems that this week’s interest is about to decline a bit. We still have just partial data as the week is not over yet, but it’s enough to see how analogous the situation is to the Feb 27 – Mar 5, 2022 week.
And guess what happened in gold at that time…
Just a brief gold price analysis reveals that it peaked but not exactly when the concerns did. Gold price continued to move higher after that lower-interest week for a few more days and then it topped.
That’s exactly what we saw last week.
And what’s likely to happen after an important top? A big decline in prices.
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Sincerely,
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief