Short-Term Gold Price Outlook Remains Bullish, But…

Whoever requested the extra portion of signs from gold and gold stocks certainly didn’t have to wait for long.

Gold stocks severely underperformed gold once again, and this means that the end of the rally in gold is probably near. It might or might not be completely over just yet. And here’s one of the reasons why:

Short-Term Gold Price Outlook Remains Bullish, But… - Image 1

The USD Index and the price of gold are negatively correlated, and it is usually the case that what’s bearish for the USDX is bullish for gold.

Now, the USD Index just moved to its support line, which at this time might mean that another small move lower is about to take place.

  • “Wait, isn’t a move to the support line, a bullish development for the USDX? Shouldn’t the support line trigger a rally here?”

The above would be a natural question to ask in this situation.

In reality, one should always look at the context. The context here is that when the USD Index previously moved to its short-term support lines that were based on the July low, it then moved lower for a short while, and that move lower led to the final bottom. Then, the U.S. dollar moved higher.

I marked both previous declines of that kind with blue ellipses. If the history is to rhyme, we might be right before the temporary decline below the rising support line – perhaps to USDX’s previous lows, just like in mid-August. This price is currently at about 104.

If that happens, it would be likely to result in a move higher in gold.

Short-Term Gold Price Outlook Remains Bullish, But… - Image 2

Gold futures were once again (very slightly, but still) up, even though mining stocks were not, this has bearish implications in general, but doesn’t tell us if the top is already in. It tells us that it’s either in or nearby.

As I described before, the nearest combination of strong resistance levels is very close – about $10 above yesterday’s close, so it could be reached any hour now. The momentum remains positive, so reaching this target – close to $1,965 – might be what triggers the reversal.

The reversal is likely anyway because the fact that both resistance lines cross creates a triangle-vertex-based reversal point. And it is due right about now.

Consequently, we might see some very interesting action in the upcoming days – with gold likely reversing its course, but quite likely from slightly higher price levels.

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