Gold: Signals from Stocks and USDX Should NOT Be Ignored

Markets are connected, and what happens in stocks and currencies is likely to impact gold as well.

Today’s analysis is going to be short as very little happened on the markets on Friday and in today’s pre-market trading, and whatever happened was pretty much in tune with what I wrote previously.

Gold didn’t do much overall – it moved slightly higher on Friday, and it’s slightly lower today.

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Overall, the breather that gold started after breaking below the rising support line continues. The breather itself is a bearish phenomenon as it “legitimizes” the breakdown. It’s been more than three consecutive trading days below the line, so the declines are likely to be resumed shortly.

Perhaps the decline has already resumed, even though it’s not apparent, and I’m writing this based on the fact that gold hasn’t made a new intraday high today, which used to be the case in the previous four trading days.

Miners moved somewhat higher last week, but I explained how it relates to the medium-term trends in gold and miners (and the link between them) on Friday, so I don’t want to go over this once again today.

What I do want to emphasize is that what we saw in stocks is, well, also very much in tune with what we saw previously. In particular, since it’s in tune with what we saw after the very first part of the enormous 1929 decline, what we saw last week is not bullish at all.

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Back in 1929, stocks corrected about half of their initial decline in October before plunging. The correction itself took several days.

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Well, the same was the case last week. The S&P 500 corrected about half of its recent decline.

The analogy is not as perfect as it might seem, because the 1929 chart features the Dow, not the S&P 500, but it confirms more or less the key point. The several-day-long correction after a near-monthly decline is normal at this stage. Stocks could launch a powerful downleg any day now.

The opposite is likely for the USD Index.

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The pause in the USDX might be getting over here. It’s been more than several days, and the RSI declined even more than it did in mid-September, when it was in a similar situation. The rally could return any day (or hour) now.

The two above are likely connected. Rising USD Index make U.S. exports less competitive, thus likely the revenue of U.S. stocks, and on the other hand, declining stock prices make the safe-haven currency – the U.S. dollar more attractive.

And both are usually connected with declines in gold, silver, and mining stocks.

In particular, with much lower stock market values, junior mining stocks are likely to slide.

As I wrote on Friday, the move lower in miners might not happen immediately when stocks decline, but overall, miners are likely to follow anyway.

I previously wrote the below as the most likely scenario going forward:

What’s the most likely scenario going forward? Gold price continues to rally to new highs, we close the long position cashing profits, and then gold and miners both slide and we end up cashing in profits from the short position in junior miners as well. In the meantime FCX falls, and we cash those profits too.

The first part is done – we closed the long positions, cashing in profits. Now, gold, miners (and FCX) are likely to slide – either immediately or shortly.

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