Gold Forecast: Another Day, Another Failed Attempt To Fly

At the moment of writing these words, gold continues to move around the $1,800 level, so nothing really changed in the last several hours. Not much changed during yesterday’s session either. While gold, silver, and mining stocks made new highs in terms of the closing prices, they didn’t move to new intraday highs, and today’s small intraday upswing also ended at lower highs. This divergence suggests that something could be about to change.

Let’s check what happened in the key markets yesterday.

Yesterday’s session can be summarized in two words: “another attempt”. Friday’s intraday rally was invalidated before the closing bell, and this week bulls made another attempt to take the previous highs. Both: GDX and GLD closed above their previous highs, and the GLD even closed above its declining resistance line. In other words, we saw a breakout.

The key thing about this breakout, however, is that it’s not confirmed, and it seems that it won’t be confirmed. And that’s not just because of lower intraday lows; that’s not “just” because of the epic analogy between now and 2013 (and 2008) either. It’s the case because of what’s happening in the USD Index and of how the markets are likely to perform in the period between the tapering announcement and when it actually starts.

Let’s take a look at the USD Index first.

The key thing about the USD Index is that it didn’t invalidate its breakout to new 2021 highs. Instead, it verified it. The August high held as support and yesterday’s move higher confirms that.

The situation now appears to be the same as it was at the beginning of August, where the bottom also took several days to form, but when the USD Index finally moved higher once again, gold plunged. To be precise, back then, the bottom formed over 5 trading days, and yesterday was the fifth trading day of the current bottom. On the sixth day – back then – the USDX did very little and gold declined modestly, and it was the seventh day when the action really started. And… the short-term decline was over on the very next day. It was not easy to catch this decline if one wanted to wait for a big confirmation that it is indeed taking place. It seems that the same – patient – approach is justified in the current situation.

The RSI indicator (upper part of the chart) continues to confirm this similarity.

Summary

To summarize, the outlook for the precious metals sector remains extremely bearish for the next few months. Since it seems that the PMs are starting another short-term move lower more than it seems that they are continuing their bigger decline, I think that junior miners would be likely to (at least initially) decline more than silver.

From the medium-term point of view, the key two long-term factors remain the analogy to 2013 in gold and the broad head and shoulders pattern in the HUI Index. They both suggest much lower prices ahead.

And as silver often moves in close relation to the yellow metal, when gold falls, silver is likely to decline as well – it has probably already started its slide. The times when gold is continuously trading well above the 2011 highs will come, but they are unlikely to be seen without being preceded by a sharp drop first.

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Thank you.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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