Miners Are Showing the Way
The situation in gold might seem perplexing now. It reversed on strong volume, but it also ignored USD’s decline.
So, is it bullish, or bearish?
We’ll find more details on gold’s short-term chart. The first thing that “pops up” out of this chart is how far gold rallied and then how far it declined recently.
Overall, the key thing visible on the above chart is still the fact that the recent back-and-forth movement is one big verification of the breakdown below the rising, black support line. And this is bearish. And as I wrote previously…
That was it.
No major rally.
No comeback above $2,000 (despite the attempt).
Just a regular verification of an important, short-term breakdown.
The implications are very bearish for the short term, especially when we factor in the similarity between now and the early-2022 performance.
Both declines started from very similar levels, and we first saw an initial slide that was then followed by a corrective upswing.
This time, the upswing was smaller, but that’s not surprising given support/resistance levels that were at play back and recently. Back in 2022, the 50-day moving average served as support, and this time we saw breakdowns below it and below the rising support line, and they were then both verified as resistance. This resistance limited the size of the corrective upswing.
Either way, the follow-up action is likely to be analogous, anyway. And this means that declines in gold are likely just ahead.
Gold price is about $8 lower than it was when I described the above chart last week (and of course, a $8 decline is not the kind of decline that I mean; based on my analysis, something much bigger is likely just ahead), so practically everything that I wrote about it remains up-to-date with one extra bearish addition.
That bearish addition comes from the Stochastic indicator that you can see in the bottom part of the above chart.
Namely, we just saw a sell signal from that indicator. There was only one very similar signal in the recent past and it flashed in May – when gold formed its yearly top.
Needless to say, this is a very bearish analogy.
On the bullish side of things, gold formed a hammer reversal candlestick and it took place on big volume. Normally, this would have been a very bullish development. It isn’t one, because of the corresponding action in the USD Index. The latter declined significantly yesterday, so gold was practically forced to move higher. And instead of moving much higher, it ended the day a mere $1.80 higher.
Since gold was forced to move up, the reversal doesn’t show the true strength of the market – and, therefore, shouldn’t be treated as such an indication.
The upcoming declines will likely create a good buying opportunity for mining stocks within the next few days/weeks, but whether we do indeed see one, will depend on the way miners get to their downside target.
PS. To clarify some confusion and misleading information that you might find “out there” (probably spread by those that are not analyzing the precious metals market but that rather cheerleading it) regarding my profitability and the kind of positions that I’m opening in my Gold Trading Alerts (both: long and short), here’s a complete (!) list of trades that I featured since 2022.
“A trade” means that it was completed, I am not featuring the currently open positions (we have two: in GDXJ and FCX), but details of those positions are available to Gold Trading Alert subscribers.
Whenever discussing profits, I mean the nominal profits based on the basic, unleveraged instrument, like GDXJ and FCX); selection of instruments is not something I’m accountable for, and each investor determines it on their own, thus I’m not responsible for using options, leveraged instruments like futures / leveraged ETFs etc., and the way it might affect the rate of return.
Yes, all eight out of eight were profitable. And while I can’t promise any kind of performance of the current positions (nor any other), in my opinion, their potential is enormous.
Here’s the complete (!) list in inverse chronological order (please click the links for the actual analyses in which I described when the profits were taken; feel free to verify hours at which it was posted and where markets were trading at those times):
1. On May 25, 2023 we took profits from the short position in the FCX (practically right at the bottom; opened on Apr. 5, 2023).
2. On Mar. 17, 2023 we took profits from the short position in the FCX (almost right at the bottom; opened on Mar. 8, 2023).
3. On Mar. 1, 2023 we took profits from the LONG position in the GDXJ (very close to the local bottom; after the “easy part” of the rally).
4. On Feb. 24, 2023 we took profits from the short position in the GDXJ (almost right at the bottom; and that’s where I wrote about the long position from point 3).
5. On Jul. 28, 2022 we took profits from the LONG position in the GDXJ (entered on Jul. 11, 2022; we were buying around and very close to the bottom).
6. On Jul. 8, 2022 we took profits from the short position in the GDXJ (very close to the bottom).
7. On May 26, 2022 we took profits from the LONG position in the GDXJ (very close to the top; just several days before the top).
8. On May 12, 2022 we took profits from the short position in the GDXJ (that was exactly the monthly low and reversal; and that’s where I wrote about the long position from point 7).
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Przemyslaw K. Radomski, CFA