Is the TIME for Gold up Yet?
Why isn’t gold declining yet? Shouldn’t miners be sliding already? These are the questions that I’ll focus on today.
First of all, I assure you that if it depended on me, they would both be much lower, and the portfolios of everyone here would already be so big that the brokers and bankers would be scratching their heads in awe.
Of course, the scope of the things that do depend on me is smaller than the above. What I can do is remain as objective as possible, and analyze the situation thoroughly and applying extra care and diligence while doing so.
Fortunately, the human psyche doesn’t change (in general), and people undergo similar emotional states given similar triggers and input information overall. One of the ways in which we see this play out is that similar price/volume/sentiment situations are followed by similar price moves – even if the underlying fundamental situations are completely different. The above phenomenon even has a name – price formations. However, if the underlying fundamental situations are similar, the odds of seeing the history rhyme increase significantly.
As I emphasized multiple times in the previous days and weeks, the current situation appears to be very similar to what we saw in 2008. There are some other analogies in place as well, and I commented on many of them in Friday’s big analysis, and I even added special comments on the link between junior mining stocks and Bitcoin yesterday.
Today, I will once again focus on the key one – linking the current situation with what happened in 2008, and I’ll put the biggest emphasis on the aspect of time.
It is said that time is more important than price and that when the time is up, the price will reverse.
Well, since the situations are so alike, let’s check when the time for gold was “up” and when it moved sharply lower in 2008.
The first top in gold formed in mid-September 2008, and the final top formed in mid-October 2008. That was precisely 16 trading days later. In other words, gold has been moving back and forth close to the initial high for 16 trading days, and then it plunged.
Consequently, if gold was trading sideways for about 16 trading days after the initial top, it would be perfectly normal and a sign that a slide was about to follow.
Well, let’s check the current status.
Gold formed its initial top on March 20, 2023.
Today is the 11th trading day after that.
This means that the current back-and-forth movement does not deviate from the 2008 pattern AT ALL!
In fact, what we saw recently in gold is perfectly normal, given its link to 2008.
It also means that even if gold doesn’t plunge for a week (or even two), it won’t break the analogy by itself.
Does it mean that gold is likely to rally from here?
No, it doesn’t imply that. Gold has been unable to stay above $2,000 despite multiple attempts, and nothing suggests that this is about to change in the near term. Even the very recent move lower in the USDX didn’t allow gold to do that.
The RSI is close to 70, which means that gold is very close to being oversold, and the volume declined – it’s been relatively low during the most recent immediate-term run-up.
Speaking of the USD Index, let’s take a look at its chart.
I already wrote about it, but it’s worth emphasizing it one more time.
The sharp short-term decline after a sharp-short-term rally was typical before two of gold’s key tops. The final 2008 top and the 2011 top.
This is particularly important given all the other links to 2008.
Back then, the final bottom in the USDX was a bit (but not much) above the initial bottom. Well, guess what’s happening right now.
On a medium-term basis, the USD Index is close to its 2023 low but still somewhat above it.
On a short-term basis, the USD Index moved to (exactly) its March low yesterday.
From both points of view and given the link to 2008, it seems that the final bottom for the USD Index is either in or at hand.
What about mining stocks?
As I emphasized numerous times, miners – and in particular junior miners – tend to move more in tune with the general stock market than gold does. And that was also the case back in 2008.
Back then, stocks slowly declined – and so did miners.
This time, the outlook for stocks is extremely bearish from a medium-term point of view, but the very short-term picture is rather unclear.
I’m not sure if it makes sense to even comment on the above chart, because the analogy to 2008 is extremely clear. Starting from the same price levels – world stocks were unable to move to new highs despite so much money being created worldwide in the meantime. And now, after the analogous retracement and analogous action in RSI, world stocks stand on the edge of a cliff.
Now, thanks to the central banks’ policies, they are about to take a big step forward. :D
On a short-term basis, it looks like the small head-and-shoulders formation is finally going to end up being a broader head-and-shoulders formation.
The red, dashed line marks the neck level of the pattern. The right shoulder is likely forming at slightly higher levels, but besides that, the pattern is quite symmetrical.
While the RSI is not at 70, it is at the levels that stopped the March 2022 and the late 2022 rallies.
This, plus declining volume, suggests that the turnaround is either here or very, very near.
Consequently, we might not need to wait another week or two before seeing a top and the subsequent decline in junior mining stocks.
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Przemyslaw K. Radomski, CFA