Gold Price Forecast: Is Gold Bucking The Trend?

By now it seems that gold’s refusal to rally despite the USD Index testing new lows is an example of bucking the trend. The same applies to silver and the miners. This trend, throughout recent history, has implied that the stronger the value of the U.S. dollar, the lower the price of gold – and vice-versa. So, what’s happening? When gold should be rallying because of a lower USDX, why doesn’t it?

During yesterday’s session, gold and gold stocks declined, while silver remained relatively flat, and the USDX moved to new 2020 lows. That’s not normal. The PMs “should have” rallied since their “main adversary,” the USD Index, moved to new lows. Especially considering that PMs tend to react more profoundly to the USD’s breakouts and breakdowns than to other types of moves.

This is not normal – this is simply bearish, and a clear sign that the precious metals sector is not ready to move higher at this time. It’s the middle of December and I previously wrote that gold might be bottoming at this time, however, based on this clear (and quite extreme) weakness it doesn’t seem anything like that is likely to be taking place. Instead, this all looks like a big prelude to another substantial wave down.

Gold rallied in today’s (Dec. 15) pre-market trading – did it invalidate the above, or at least yesterday’s indications?

Looking at gold on its own doesn’t indicate any major changes. Gold continues to move back and forth after the first big daily decline, which happened once gold verified its breakdown below its September lows. This is a relatively normal course of action – nothing to call home about. Getting bullish based on today’s pre-market rally doesn’t seem justified and rather risky.

But things get much more interesting when we compare this action with the USDX movement.

What the USD Index is doing right now – at the moment of writing these words – is verifying the breakdown below the previous 2020 lows in terms of the daily closing prices.

This makes further declines more likely, but at the same time it shows that gold’s rally is not as strong as should be if this was a new medium-term uptrend in it. The USD Index just broke below new yearly lows and new monthly lows. Gold is very far from its yearly highs and it didn’t even manage to move back to its monthly highs. Instead, it corrected about half of the preceding December decline.

Summary

The following days 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.

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

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