Gold price plunged by almost 3% today as the USD Index finally completed its inverse head-and-shoulders bottom pattern.
No surprise here. I’ve been writing that gold was likely waiting for USD’s “push” for some time – and even though the signal was subtle (only those looking at the markets from the very short-term point of view noticed that there even was an inverted H&S pattern in play), gold reacted strongly.
This is also not surprising, as gold has been extremely overbought, had entered a parabolic upswing. and then it broke below the parabola. The writing was on the wall, and we’re just starting to see the consequences.
Gold price is very likely to decline in May 2025.
If you’ve been feeling “tempted” to close short positions in mining stocks or even go long, now you know why – it is because that’s almost everyone feels at or very close to the top. In fact, that’s why tops are formed – because everyone “feels” bullish and is buying because of that. And when everyone is already in the market, how can the price keep rallying? As a reminder, if there are no buyers and no sellers on the market, the price doesn’t stay where it is – the exchange mechanism causes the price to decline until some buyers emerge. So, when the buying power dries up – the game is over (at least for some time).
On a side note, that’s what we saw at each major top in stocks in the past. There was a huge slide after the top, and in each case, there were voices screaming “manipulation”. There were investigations to uncover who pulled the plug and triggered the sell-off and none of them found anything. It was simply the case that the market “run out of buyers”.
The opposite of that is “buying when there’s blood on the streets” – after the carnage, when everyone is afraid that the price will just keep on declining for “who knows how long” – and therefore they are out of the market. That’s when it’s time to buy.
We’ll get there – especially in mining stocks (which are known to perform exceptionally well in the first parts of rallies in the precious metals sector), but we are likely very far from those times and prices right now.
Moving on to the charts, here’s what gold price just did.
Nice, decisive plunge after a consolidation – the decline simply continues.
The next stop is at about $3,150 – the rising, short-term support line. We’re likely to get some sort of rebound from there, but I wouldn’t bet the farm on this scenario. The rebound might be small or (more likely) short-lived or both.
Silver declined as well, and it moved below its recent intraday lows as well as its 61.8% Fibonacci retracement level. This means two things:
1. Silver price is likely to decline further
2. Our short position in silver (entered on April 14) is already profitable, and it’s likely to become MUCH more profitable in the near future.
Meanwhile, the GDXJ ETF moved higher yesterday, but it’s already down substantially in today’s pre-market trading.
Junior miners moved higher on very low volume yesterday, and this alone suggests that their “strength” relative to gold should not be trusted. In fact, we saw the same kind of “upswing” in late April, just before GDXJ declined.
Indeed, the GDXJ is down to $59.64 in the pre-market trading at the moment of writing these words.
This is significant because the highest daily close of 2020 was $59.58. This means, that GDXJ could invalidate the breakout above this high in terms of daily closing prices as early as today.
The lowest weekly close of 2020 was $56.69, so if we were to get this week’s close below that, the invalidation would be perfect. And that’s exactly what we’re likely to get – if not this week, then in the next of the following weeks.
Given gold price’s momentum so far in May, and – most importantly – USD Index’s likely final bottom, it seems that we won’t have to wait long for this invalidation. And the invalidation itself would serve as a gateway to much lower prices in the following weeks.
My best bet right now is that we’ll get the above-mentioned invalidation in terms of the weekly closing prices next week. The reason is the situation on the stock market.
Stocks broke above their declining resistance line despite their earlier decline. That move was quite tricky. While I continue to think that stocks are going to move substantially lower, I also think that FCX (remember our previous trade?) and silver offer better risk to reward ratio for the short position than stocks on their own – which is why I’m featuring those trades right now (we did profit on the easy part of this rebound in stocks, though). Still, for those of you shorting the stock market right now, I don’t think that this upswing changes anything.
Nothing changed from the fundamental point of view, and technically there’s a clue pointing to an incoming reversal as early as on Monday.
The markets have fractal nature, which means that price patterns that we see on smaller time-frames also appear on broader time-frames. That’s why you can see patterns like head-and-shoulders tops in charts featuring weekly, daily or even intraday prices.
In case of the above chart, the interesting self-similarity is with regard to stocks March breakout above the previous declining (dashed) resistance line. Stocks broke above it, rallied a bit and then topped. What’s particularly interesting is that they topped in tune with their triangle-vertex-based reversal point.
Right now, we see something very similar, only the scale is bigger. Applying the triangle-vertex-based reversal in the same way provides us with Monday as the reversal day. Still, please keep in mind that while this technique is often very precise, it’s more likely to work on a “near to” basis. So, we might get the reversal as early as today or as late as on Tuesday or even Wednesday. My best bet is still Monday, though.
The above means that while silver and miners are likely to decline today, it will likely be next week when the decline accelerates. The same goes for the decline in FCX. The latter already started it yesterday, but since copper declined so much, it might need to take a breather and given stocks’ upswing, FCX might move sideways or even move slightly higher as well. In fact, FCX is up by $0.15 in the pre-market trading – this perfectly fits the “breather” scenario.
The USD Index completed its inverse head-and-shoulders pattern, and it already pulled back a bit – which is common after those patterns.
Even if we see some sideways movement here today/tomorrow, the technical now strongly favors another move higher.
This would likely lead to a breakout from a bigger point of view.
A move above the declining resistance line would confirm the major bottom and launch another powerful upswing – leading to declines in precious metals and commodities. And more precisely – since those are already declining – to the declines’ acceleration.
The most important thing, though, is that the long-term bottom formed at the 61.8% Fibonacci retracement level based on a long-term rally. This confirms that the big trend remains up. Just like the 2018 Mnuchin-based bottom started a massive upswing, this year’s tariff-based bottom is likely starting one here as well.
The bottom line is that gold price in May 2025 is likely to move substantially lower and the first session of the month provides a good example of what’s likely next.
The potential for all our trades (as presented to our subscribers) is excellent. All this serves as the final call to join the trades – it looks like the decline is about to accelerate and the best part thereof will be gone soon.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief