Gold Price Bottom or Just a Breather?

Every time gold moves back up, the same question emerges - was that THE bottom?

 Gold Price Bottom or Just a Breather? - Image 1

Gold corrected more visibly today, but it really doesn’t change anything as far as outlook for gold is concerned. The key thing for gold is the massive weekly reversal that formed over two weeks ago, and we saw another weekly reversal last week. The implications are very bearish for the weeks to come. Today’s tiny move up doesn’t invalidate any of the above.

 Gold Price Bottom or Just a Breather? - Image 2

Besides, gold’s correction corresponds to the USD Index’s correction, which is as normal as it gets. After four days of rallying, it’s natural for a market to take a breather, and that’s exactly what we see today.

USDX’s pause here could mirror the pause that we saw in the second half of December (marked with rectangles), which would both serve as shoulders of an inverse head-and-shoulders pattern – a bottoming formation.

This is in perfect tune with what I wrote previously, and those comments still remain up-to-date – they continue to support even higher USDX values.

 Gold Price Bottom or Just a Breather? - Image 3

Let’s check the facts:

  1. The USD Index is after a sizable, short-term decline, which caused it to be very oversold in RSI terms.
  2. The last two times, when the RSI was similarly oversold, immediately preceded bottoms and rallies (including the yearly bottom).
  3. The USD Index is slightly above the all-important 100 level, which serves as a strong support due to psychological reasons (everyone notices it as it’s a perfectly round number).
  4. The USD Index is at its previous bottoms – each time the USD Index got close to the current levels in 2023, it then bottomed and rallied.
  5. It’s very close to the turn of the month, and the USD Index has a strong tendency to reverse its course close to those moments (as marked with blue, dashed lines). Since the last move was to the downside, the reversal has bullish implications.

There is one additional clue on the long-term chart.

 Gold Price Bottom or Just a Breather? - Image 4

It’s the rising, long-term support line that started in 2011. It was reaching this line that triggered the reversal and caused the yearly bottom to form. Precisely, the USD Index broke slightly below this line, and it was the invalidation of the breakdown that created the bottom.

The USD Index is EXACTLY in the same position right now!

Due to all points listed below the USD Index’s short-term chart, the U.S. currency is very likely to rally at least in the short run. This, in turn, means that it would invalidate the breakdown below the rising, long-term resistance line, just like it did at the 2023 bottom, thus flashing a similar, long-term buy signal.

We just saw the invalidation of the breakdown below the rising, long-term support line – we once again saw the key buy signal!

Since gold was recently now willing to decline even while the USDX was moving lower… Gold is likely to truly plunge (and the same goes for other commodities, like natural gas, the key industrial metal - copper, even uranium) when the USD Index finally rallies. And it looks like those price moves have already started.

Also, please keep in mind that the sentiment toward gold is still extremely positive, which is what we see at major tops. The below quote continues to confirm it:

Have you considered buying gold recently? Like to the point of searching for it online?

Because many people have.

 Gold Price Bottom or Just a Breather? - Image 5

As you can see on the above Google Trends screenshot, the searches for “how to buy gold” just soared, and it’s not the first time that it happened.

Makes one wonder… What happened to gold price in those other cases?

After all, whatever circumstances triggered this jump in the interest in the topic, they are taking place all over again. I don’t mean the state the world is in – I mean the sentiment among gold investors. By estimating the latter, we can also estimate what’s likely to happen to the price, because… The history tends to rhyme, and people’s emotional reactions to what the market is doing remain more or less the same, regardless of the details of the fundamental situation.

I marked one of the moments on the above chart and here are the other notable peaks:

 Gold Price Bottom or Just a Breather? - Image 6

 Gold Price Bottom or Just a Breather? - Image 7 Gold Price Bottom or Just a Breather? - Image 8

So, what happened to gold price on those occasions?

 Gold Price Bottom or Just a Breather? - Image 9

I marked all-above-mentioned cases with blue, dashed lines and in three out of four cases those were the MAJOR tops. Ones that were followed by hundreds-of-dollar declines in the price of gold.

The only remaining case was when it was still the end of a short-term rally and the start of a pause (that took gold about $100 lower, anyway). This time was truly exceptional, though, because it was right after the covid-scare bottom – it was not a regular course of action.

So, I’d say that in all “regular” cases, the huge increase in interest in buying gold translated into huge declines in the following months. After all, people tend to buy at the tops – that’s exactly what this sentiment analysis proves.

We are at this stage one more time (in many other stocks (the link leads to the most recent stock analysis), too, including some oil stocks). Once again, it’s difficult NOT to buy into the euphoria, even though looking at the situation from a broad perspective practically “screams” WATCH OUT.

Now, you are informed, you are prepared.

And I will continue to keep you – my subscribers – up-to-date, so that what surprises most investors, will not surprise you, but that it will benefit you. We’re on a streak of 11 profitable (unleveraged) trades, after all, and it’s VERY likely that the current trades will increase this streak soon.

Again, as always, I’ll keep you – my subscribers – updated.

You can find its details in the full version of today’s analysis – today’s premium Gold Trading Alert. Also, please note that my subscribers stay up-to-date at all times – when things get hot, I’m sending intraday Alerts and that’s the part of the service that my subscribers often say that they enjoy the most. Join us and profits with us today.

Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief