Gold Price Prediction: Is The Final Low Already In?

Even though many signs have been pointing to lower precious metals prices, we just saw a daily upswing. Were the bearish signs just invalidated and is the final bottom for this major decline already behind us?

In short, we think it’s unlikely. Let’s examine the charts and see why we think this is the case. Let’s start with gold (charts courtesy of http://stockcharts.com):

In our Friday alert we wrote the following:

As mentioned earlier, Friday’s move was not meaningful because of the “quadruple witching” which could have made the move artificial. Moreover, the volume that accompanied the move to the upside was smaller than what we had seen previously. Consequently, the outlook remains bearish.

The implications of the price-volume link remain bearish also today. Gold moved higher yesterday, but the move materialized on relatively low volume. Consequently, yesterday’s price action is most likely just another counter-trend move higher within a bigger decline.

Silver has once again moved higher and this time it managed to close above the declining resistance line. Is it very bullish? If it wasn’t silver, it might have been bullish, but silver is known for its fake breakouts, which are followed by sharp declines. Consequently, we don’t really view yesterday’s price action as something really significant. 

From the long-term point of view, silver once again moved to the declining red resistance line – there was no major breakout and the trend remains down.

As far as the situation in the HUI Index is concerned, not much changed from the long-term perspective on Friday and yesterday and our previous comments remain up-to-date:

The HUI Index moved visibly lower and it’s about to create a bearish head-and-shoulders pattern. The target based on this formation is the 80 level, which was our next interim target anyway based on the early 2002 low and other calculations (the gold price target and the gold stocks to gold ratio analysis). Consequently, this target is even more likely to really hold the decline (at least for some time). Please note that there is also another level to which gold stocks could decline – the 60 level.

It seems unrealistic – we know – but did 106 seem realistic when the HUI was trading above 600 just a few years ago? The fundamental outlook for the precious metals market remains bullish in our view, but that doesn’t change anything (!) regarding the short term or even the medium term, given a strong downtrend. Markets are logical only in the long run, and emotional in the short run. Consequently, it is possible for the HUI Index to become even more oversold than it is right now before the final bottom is in.

As far as the short-term picture is concerned, miners moved higher, but not above the declining resistance line. Consequently, yesterday’s rally changed rather little. The particularly interesting thing is that the gold price is almost at its previous December high while the GDX ETF corrected only about half of the December decline. The relative underperformance is a bearish sign.

Speaking of relative performance, gold stocks vs. the general stock market ratio is on the verge of breaking below a very important low. The implications of this move will be very bearish and since the trend remains down (note the declining resistance line), it is likely that we will indeed see the above-mentioned breakdown.

The decline in the above ratio is positively correlated with gold’s decline so a breakout here could very well translate into lower gold prices. The implications are bearish. It seems that the profits on the current speculative short position will become much bigger – after all our target of $960 in gold is well below the current market price and if the analogy to the 2013 slide is indeed in place, then we will likely not have to wait long before this level is reached.

The upcoming year will likely start with major events in the precious metals world and paying extra attention to this market for the first few months should prove well worth it.

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Please note that the above is based on the data that was available when this essay was published and we might change our views on the market in the following weeks. In order to stay updated on our thoughts regarding the precious metals market and our free articles we suggest that you sign up to our gold mailing list – it’s free and if you don’t like it, you can unsubscribe anytime.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits - Silver & Gold Investment

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Disclaimer

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 a subject to change without notice. Opinions and analyses were 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 believed 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.

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