The 2011-2024 link in gold price STILL continues and what we saw yesterday was perfect confirmation.
In Monday’s analysis, I wrote the following about gold’s pre-market gains:
Gold is up in today’s pre-market trading, but not significantly so. This is in perfect tune with the post-double-top 2011 price action – the local moves back up were normal, and they didn’t prevent gold from declining.
The interesting thing is that the current sentiment appears to be very similar to what we had in 2011. I’m not sure if you remember this, but back then it was impossible to convince people that gold was about to move lower. In fact, back then at the top, I also thought that gold would move even higher after this “brief pause” – because that’s the double-top pattern seemed like at that time.
Gold price was in uncharted waters, there was no clear analogy to anything like that. This time, we DO have this kind of analogy. One could choose to ignore it and follow the sentiment, the “this time is different, gold and stocks can’t fall” narrative, or one can look at how similar the situation were and analyze other facts with cold logic.
Yesterday, I added:
(…) the extent to which gold price moved back up temporarily during the back-and-forth decline. I’ll catch up on that today, as this allows us to estimate what kind of price moves are normal (within the pattern) and which are game-changers (that break the pattern).
Back in 2011, gold price corrected more than 61.8% of the initial decline from the second top. This means that seeing something like that would be the continuation of the pattern, especially that I had warned about something like that beforehand.
In today’s pre-market trading, gold price moved very slightly above the 61.8%% Fibonacci retracement – the rally was smaller than what we saw in 2011. This means that the analogy to the back-and-forth decline that immediately followed the 2011 double-top remains fully intact.
That’s how the session ended:
Gold ended the day almost unchanged after a sizable rally. Not only is the analogy to 2011 fully in place, but the daily reversal is bearish on its own.
In today’s pre-market trading gold price is up again – in a similar manner as it was up yesterday. Today’s upswing is smaller, though. This is still in tune with what we saw in 2011 – the back-and-forth movement.
What we can expect to happen soon is for gold to decline with decreased volatility compared to what we saw in the last several days (and in today’s pre-market trading). And then, at some point (perhaps after several days), it’s likely to slide in a major way.
How low would gold be likely to slide? Back in 2011, gold erased almost its entire pre-top rally, so if the same was to happen here, we would be looking at $2,000 - $2,050 as the target area.
Did you notice how silver already topped and now simply continues to decline?
The white metal didn’t move to its late-2023 top and it formed its high at the lower of the rising resistance lines. It’s been in the decline more since that time.
This approximately corresponded to the bottom in the USD Index.
The U.S. currency is after a major medium-term breakout, which followed a short-term breakout. This is bullish.
Moreover, the USDX just verified its breakout above the lower of the declining long-term (!) resistance lines.
That’s the first time (after two failed attempts), when the USD Index was able to hold above the solid line for three consecutive trading days after breaking above it. This is way more important than many would think.
The final resistance line is based on the 2022 top and the second 2023 top. Still, I consider the confirmed breakout above the solid line as more important than the fact that the USDX is still below the dashed line. After all, it was this line that the USDX tried to break three times (and failed) – so this line already worked as resistance. The dashed line was never reached, so it’s not even certain if it does provide resistance. In theory, it should, but in the case of the solid line, we also have proof that this was the case.
The USD Index is now likely to move much higher (despite the possibility of seeing a pullback close to the turn of the month), which could be the trigger that pushes gold into a decline mode, which – in turn – triggers a slide in junior mining stocks.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief