Gold’s, Silver’s and Dollar’s Indications

The situation on the forex market continues to develop with my previous comments.

But – as you also read previously – the big impact on gold (and mining stock) prices can be delayed until the markets are more certain that the rallies are not accidental.

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That’s what we saw in 2022, but since I wrote about it in greater detail yesterday, I don’t want to discuss it once again today.

In short, my May 6 bullish comments on the USD Index remain up-to-date:

The U.S. dollar moved sharply lower on Friday, and it moved back up before the closing bell. This was the third consecutive day when we saw a sharp move lower in the USDX.

There are two aspects of this decline that I’d like to comment on. First is gold’s reaction to it. There was practically none. I marked the March rally on the above chart as well as the current performance of gold as they both corresponded to similar declines in the USD Index. Back then gold rallied substantially and right now gold didn’t rally at all – despite some back-and-forth movement.

This simply confirms that gold price most likely already topped and now it’s in a downtrend.

This is also in perfect tune with what we saw in September 2023 and with what I wrote about this analogy in the past. I wrote that gold might move higher a little while the USD Index consolidates and that’s what’s been taking placed. The difference is that the USD Index’s decline this time was bigger and yet, it didn’t make gold rally – which suggests that gold is not done declining just yet.

The second aspect of the recent decline and Friday’s reversal is what it means for the USD Index itself and its likely impact on gold going forward.

Just as it seems at the first sight – the nature of the daily reversals is bullish if they are after a decline. After all, that’s what’s in the name “the daily reversal”. But that’s not all – the important detail is that the recent decline and the reversal itself is how the USD Index performed in March, and the daily reversal was indeed the end of the decline, that launched the USD Index much higher. Naturally, this analogy has very bullish implications for the USDX, which is bearish for the precious metals sector.

Indeed, the implications are bearish for the PMs, but – as I explained yesterday – they don’t have to play out immediately, they can be delayed.

Still, they might not be delayed for much longer, as we see a bearish short-term indication from gold and silver’s relative valuations.

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The thing is that gold is not really moving higher – trading below its late-April top – while silver is outperforming, rallying above its late-April top.

Silver is known for fake breakouts and fake strength relative to gold – what we see right now – silver’s short-term outperformance is not a bullish sign; it’s a bearish one.

Unfortunately, the above doesn’t tell us if both precious metals are ready to slide right away, or will they need a couple more days before the decline starts, but the message here is “soon”.

The forex market is building a foundation, the stock market is providing extra fuel for the bearish fire that’s about to be lit, and silver’s short-term outperformance suggests that we won’t have to wait for the declines for too long.

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