The precious metals sector declined profoundly yesterday, while the USD Index was up by just a little. What does it tell us?
Let’s check the extent of what happened.
The USD Index rallied by… 0.28%, which is very little.
It’s a very important “little”, in this case, though, and there are two reasons for it.
First, that was enough to invalidate the small move below the 61.8% Fibonacci retracement that’s based on the most recent upswing.
I wrote that I doubted that this breakdown would be confirmed; and it wasn’t. I was invalidated instead. This has much more bullish implications than it seems while looking just at the (let’s be clear: it’s small) size of yesterday’s upswing.
This tells us that the USD Index might be bottoming here. Then again, it’s not guaranteed that the bottom would be followed by an immediate rally – we could see some back-and-forth movement before the rally picks up.
The second reason why yesterday’s 0.28% move higher is “a lot” while being small, is due to the price action that it triggered in gold, silver, and mining stocks.
They all declined profoundly. Gold futures moved close to their previous lows, while silver is above those.
And speaking of the previous lows – while all the above happened, the USD Index didn’t move to its May highs. It’s not even close.
It now takes just a little strength in the USD Index to trigger sizable declines in gold, silver, and miners.
Why? Because the rates are on the rise globally, and people are starting to trop their “dovish U-turn is here!” approach. Remember how very low interest rates (globally) were bullish for gold? It’s the opposite now, and people are finally starting to realize it.
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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Sincerely,
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief