Heads, Shoulders, and Confirmations from Silver and USDX

Gold price finally declined yesterday, but it’s still above its 2023 high – is this just a verification?

In short, that’s possible, but it’s not what appears likely. Despite yesterday’s (still relatively small) decline, gold remains extremely overbought, and the RSI indicator confirms that.

A screenshot of a graphDescription automatically generated

The RSI is still above 70 even after a $22.50 daily decline – which shows just how ridiculously overbought gold has become. Gold remains above the 2023 high, but given what’s been doing on an intraday basis, we might not need to wait long for this breakout’s invalidation.

A graph with lines and textDescription automatically generated with medium confidence

After yesterday’s decline, gold moved slightly back up, and now it appears to be moving down once again. The interesting thing is the price level at which it’s taking place – that’s where gold paused just several days ago – the symmetry here is not surprising.

Since gold paused at those levels only briefly previously, it’s quite likely that the current pause on gold’s way lower will also be brief.

Together the two pauses and the top create a small head-and-shoulders pattern. So far, this pattern is just potential, but once gold moves below its yesterday’s low, it will become real, and the target base on it will be below the December 2023 high. And the move below this high, in turn, would be another factor pushing gold lower.

Besides, I already wrote about the possible head-and-shoulders pattern in mining stocks yesterday, and those two appear to be aligned.

A screen shot of a graphDescription automatically generated

The GDXJ could be forming a head-and-shoulders top here. The Mar. 7-8 top would be the left shoulder and the right shoulder formed today on an intraday basis. In this case, we could expect a slide to or below $34.5 (perhaps much lower) this week. Of course, I can’t promise that this is the case, but it does look like if the right shoulder was in the making right now.

(…) we already saw this invalidation in the first minutes of today’s session.

The top is in.

The best opportunity to enter short positions in the GDXJ (or JNUG) is gone, but the second-best time might be today. Of course, that’s not investment advice aimed at any one in particular, but in general, the outlook for junior miners is extremely bearish here.

The next step for the junior miners is an invalidation of the move above their mid-Jan. and early-Feb. highs. After this move, I expect juniors to erase their March rally rather quickly. Again, the best time to be prepared for that just passed, but the second-best time is today.

Meanwhile, the USD Index is moving up slowly, but it IS moving higher.

A graph with red and white linesDescription automatically generated

Quoting my Thursday’s gold price analysis:

As the USD Index just moved below its late-Feb. low it can now decline even lower – how low? Quite likely to the 102.5 – 102.8 area. That’s where we have the following:

  • the 50% Fibonacci retracement,
  • the previous lows,
  • and the declining support line that was broken in the final days of February.

Before anyone says that the rates might fall in the U.S. and this would make dollar decline, please note that the same thing is the case globally – the ECB just provided the same no-rate-cut-yet-but-sometime-in-the-future narrative. The USD Index is an index that is based on several currency exchange rates, so it’s value is driven by how well the U.S. currency does relative (!) to other currencies. If the situation is bad for the USD but it’s worse for other currencies, the USD Index would be likely to rally, because in relative terms, the USD would be a better choice.

Technically speaking, the USD Index has floor just below today’s lows, so its downside is likely limited. And it’s bottom and the subsequent rally might be the trigger that takes gold lower and that takes our short positions in junior mining stocks to their profit-take levels.

The USD Index just moved even slightly below my target area, reversed in a clear way and now it’s rallying back with vengeance.

As the move above the declining resistance line was verified (it served as support) and the breakdowns below the late-Jan. and Feb. lows as well as the 50% Fibonacci retracement level were invalidated, the outlook for the USDX is bullish.

The situation in silver continues to point to lower prices, as silver hasn’t invalidated its breakdown below its head-and-shoulders pattern.

A graph showing the price of a stock marketDescription automatically generated

The silver price remains visibly below the orange, dashed line – the H&S formation continues to have bearish implications and it continues to point to a move lower – approximately to silver’s 2023 lows at about $20.

Also, please note the “elephant in the room” – gold moved to new all-time highs recently, and silver is not priced at half of its all-time high in nominal terms.

Finally, to keep things in perspective, let me quote my comments on GDXJ’s bigger picture:

A graph of stock marketDescription automatically generated

Let’s keep in mind that gold miners’ recent rally is very much in tune with previous corrections that we saw before the final bottoms. I marked the previous rallies with blue lines, and what we saw recently was only slightly bigger.

The most important thing about the above is what is not written. It was only slightly bigger despite a move to new all-time highs in gold! Miners are remarkably weak here and this is a huge, flashing, red light that one should NOT ignore.

As always, I’ll keep my subscribers pdated.

Thank you for reading my today’s free analysis. We're on a record of twelve profitable trades in junior miners (long and short) in a row and the current trade is likely to be closed profitably as well. I encourage you to join my premium subscribers and get the details right away. There’s a free weekly trial for new subscribers. Join us today.

And if you haven't signed up for our free gold newsletter, I strongly encourage you to catch up on that now and stay up-to-date with our exclusive gold price forecasts.

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