Really important things are taking place on the market – but not where most gold investors are looking.
Namely, it’s NOT happening in gold, nor in silver.
To clarify, yes, gold and silver are moving higher today, but this is very much normal because of two reasons:
1. Both are after declines (and most likely their 2025 tops) and corrections are normal – especially ones to the Fibonacci retracements. In fact, back in 2011 gold even topped by moving back to its previous high
2. It’s the FOMC day tomorrow, and it’s quite normal for precious metals to move higher amid the temporary uncertainty.
The places where we do see things that are worth to write home about (well, if you are a very fast typer, as they are visible on a very short-term basis), are: stocks, and USD Index. They are all providing subtle, yet meaningful signs showing where they all really want to head next.
Starting with the stock market, we see that it reversed in perfect tune with its triangle-vertex-based reversal.
Based on that reversal AND the breakdown below the very short-term, rising, red support line, it seems that the move above the 61.8% Fibonacci retracement will be invalidated shortly. This, in turn, means that the stock market might have just ended its correction.
We know that this is the likely outcome ahead of FOMC – technicals usually lead fundamentals, even though most people don’t know that.
If that was the only clue of this kind, it wouldn’t be so important, but there’s more of them, and in this article I’ll feature the USD Index. The latter has not only verified its inverse head-and-shoulders bottom formation – twice – it also, broke above its post-pattern consolidation.
Please note how perfectly the USD Index reversed at its triangle-vertex-based reversal. After doing that, it moved higher and then moved back to the neckline of the pattern once again. Now it’s after another rally AND a breakout above its very short-term, declining, red resistance (now support) line.
Without all those support and resistance lines, and without knowing what the inverse H&S looks like (and that it was just completed) it would look like the USD Index has just been moving back and forth for a few week. But that’s not true – those price moves have clear bullish implications, ESPECIALLY that all this “back and forth movement” is taking place as/after the USDX reversed at its very strong, long-term support levels.
The all-important 61.8% Fibonacci retracement levels based on the 2022 top and the 2018 / 2020 lows were reached and the USDX reversed from them. At the same time, the USDX verified the breakout above its declining, medium-term support line.
Plus, the RSI indicator flashed a clear buy signal by moving below 30 and now back above it. We saw something similar in 2018 (especially that it was the second of two similar tops) and that was THE bottom. Lower USD Index values were never seen since that time.
Consequently, even if the USD Index was to re-test its April low, it still wouldn’t change much based on the long-term chart.
What’s even more remarkable is that both bottoms – the current one and the 2018 one – formed when politicians (Mnuchin then, Trump now) said things that were particularly bearish for the USDX or at least that were viewed as such by the markets (the tariffs are fundamentally bullish for the USDX, even though markets’ emotional reaction was as if the opposite was the case). The latter (a price decline while the fundamentals improved) is a great reason to think that the USD Index is going to move higher in the medium term.
The short-term indications suggest that the bottom is already in and that the more visible rally is about to begin.
This, in turn, is likely to have a profoundly bearish impact on the precious metals sector and commodities. Since stocks are likely to decline as well, mining stocks and commodity stocks (like FCX) and silver (which moves like both: a precious metal, and a commodity) are likely to affected to a particularly significant extent. And we’re going to take advantage of it when it happens.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief