Small ‘Big’ Changes in Stocks Can Impact Gold Prices

The parabolic upswings in stocks were just broken. And this is huge – also for precious metals investors / traders.

Big things often have small beginnings. Perhaps that’s what will be said about the decline in stocks that just started and Friday’s relatively small reversal that I commented on Monday.

New bearish confirmations pop up every day – literally. What happened yesterday was one of them. And what happened?

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The S&P 500 broke below its rising support line – the steepest, most short-term support line. That’s how it works during emotional upswings – the momentum keeps building and growing as more and more people become enthusiastic about the market based on other’s people’s enthusiasm… And that continues until it doesn’t. By that, I mean the emotional exhaustion or some kind of shocker that might make people realize what’s really going on.

The recent news about the upcoming hikes in interest rates served as a mild shocker, and it seems that the markets moved by way too much on the “dovish U-turn narrative” that was sprinkled with some AI-craze.

The fact that RSI (upper part of the chart) moved so extremely high suggests that the emotional status of investors got truly excessive. And the comeback below 70 as well as the breakdown below the steep support line, suggest that things have changed.

And it’s not just the S&P 500 either. We see the same thing in tech stocks.

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The Nasdaq broke below its accelerating support line, and RSI was just showing an excessively overbought situation.

What does it mean? It means that the resistance line that the S&P 500 just recently hit probably did mark the top.

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This, in turn, means that the medium-term decline in the precious metals sector is likely to get a powerful – bearish – boost from stocks.

Of course, no market moves up or down without periodic corrections (and some of them are tradable!), but the odds are that the main trend in the precious metals sector is down.

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