Invalidations of breakouts are sell signs and we just saw not one but two of them…
Gold’s recent high didn’t exceed the previous high that I had already considered while preparing the previous analysis ($2,708.70), and since it’s still below $2,730 in gold, what I wrote previously remains up to date.
Namely, gold could still jump to this level and top there. This is based on the 1.618 Fibonacci extension technique and the previous major rally.
The USD Index continues to trade sideways, most likely forming a really broad bottom.
As another attempt to move below the late-2023 lows was invalidated, it’s clear that the USD Index is about to move higher.
There’s also the technique called “three-line break”. It simply means that a given market has to break above three subsequent resistance lines, and it is only the third breakout that really matters.
In case of the USD Index, the next breakout will be the third one.
Meanwhile, the GDXJ moved visibly higher yesterday – more than $0.01 above its 2022 high – but it still didn’t matter regarding the outlook because the GDXJ reversed and ended the day below the 2022 high. In other words, we had another invalidation of the breakout.
As I wrote yesterday:
That’s an exceptionally powerful sell signal, especially that this year’s rally seems similar to the one that we saw in 2022 – before the huge slide.
All in all, gold and silver might move even higher here, but the rally in the GDXJ is likely to be limited as it already reached its very strong resistance. Some (especially day-traders) might want to consider opening a long position in silver here to catch the very final part of the upswing, during which the white metal tends to outperform.
I’m not adding this as our trade here, because while silver might break out briefly (fake out), it is also at two strong resistance levels – it doesn’t have to break above them. The risk with a long position here seems too big from my point of view.
Silver moved above the previous high (and the rising resistance line) and almost immediately moved back below those resistances. In other words, we just saw another silver “fake out.” This sell signal aligns with what we saw in the GDXJ.
Gold did not yet reach its upside target, but it did reverse, so it could move higher (perhaps once again triggering moves above the previous highs in GDXJ and silver – that would then be invalidated shortly), or the rally might have ended right there – at $2,708.70. We shall know soon enough, as given gold’s momentum, it’s likely to either move to its upside target shortly or slide.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief