Gold Price Forecast: Will USDX Affect Gold In Short-Medium Term?

Regardless of when the USD Index will rally, the precious metals remain on track – one that leads downwards.

In today’s analysis, I’ll focus on the two most recent developments that probably caught your attention. The first is gold’s reversal and the second is the USD’s small decline.

In short, yesterday’s (Jan. 18) reversal in gold is inconsequential, because it took place on a day when there was no trading in the U.S. Consequently, the data from this single session is not a reliable indication of anything. Besides, gold remains below its September 2020 lows and below its most recent short-term high. In fact, it’s even below the upper border of the small declining flag pattern.

And what about the USD’s small decline?

As you might have already guessed, it didn’t change anything either.

The USD Index is after a major breakout above the declining resistance lines and this breakout was confirmed. Consequently, the USD Index is likely to rally, but is it likely to rally soon? The answer to this question is being clarified at the moment of writing these words, because the USD Index moved back to its rising short-term support line that’s based on the 2021 bottoms.

If the USD Index breaks below it, traders will view the 2021 rally as a zigzag corrective pattern and will probably sell the U.S. currency, causing it to decline, perhaps to the mid-January low or even triggering a re-test of the 2021 low.

If the USD Index performs well at this time and rallies back up after touching the support line, and then moves to new yearly highs, it will be then that traders realize that it was definitely not just a zigzag correction, but actually the major bottom. In the previous scenario, they would also realize that, but later, after an additional short-term decline.

The weak performance of mining stocks that we saw last week, and relatively strong performance of silver (up by 1.24%) compared to gold (up by 0.34%) in today’s pre-market trading suggest that PMs are very ready to slide right now. This – as markets are interconnected – might make the strength in the USD Index more likely than not. In this case, the second above-mentioned scenario would be realized, and the price moves that I’ve been describing for some time now, would gain momentum quickly.

In either case, it seems that the outlook for the precious metals market remains bearish for the short and medium-term. It is only the immediate and very short term that have any notable differences. Therefore, it seems to make sense to keep the short positions in the mining stocks intact.

Summary

The top is in and the following days and weeks are not likely to be pleasant times for anyone who jumps on the bullish bandwagon just because prices moved higher in the previous months. But what’s profitable is rarely the thing that feels good initially. As silver often moves in close relation to the yellow metal, forecasting gold’s rally without a bigger decline first is thus likely to be misleading. Silver is likely to slide as well. 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.

Thank you for reading our free analysis today. Please note that it is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the outline of our trading strategy as gold moves lower.

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Przemyslaw Radomski, CFA
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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