Since the gold market now shows parallels to 2008 and 2013, what can we expect if the correction has just ended?
The USDX’s Breakout
The changes that we saw on the charts yesterday were not enough to change anything that I described yesterday, so those comments remain up-to-date. Also, what I covered during yesterday’s live event (I combined the live market analysis with the presentation about the top 3 gold trading techniques – you can see the recording here) remains up-to-date at the moment of writing these words.
Q3 2022 hedge fund letters, conferences and more
So far today, gold and silver have moved a bit lower, while the USD Index moved a bit higher (chart courtesy of https://goldpriceforecast.com).
After yesterday’s intraday reversal, both precious metals moved lower. The silver price once again failed to move above the $24 level.
And the USD Index?
At the moment of writing these words, it’s after an overnight reversal and after a confirmed breakout above its declining resistance line.
This means that it’s now likely to move higher.
Please keep in mind that both markets, the USDX and the precious metals market, have been very strongly negatively correlated recently (with the exception of the very recent yen-related turmoil). Consequently, analyzing the gold price, USDX, and their correlation implies very bearish implications for the PMs and miners.
From the long-term point of view, it’s clear that the long-term support remains intact. The relatively small move lower that we saw this week didn’t take the USDX to new short-term lows.
There was no breakdown below the 2016 and 2020 highs in terms of the closing prices, which means that the odds for a turnaround and a rally are very high.
What Can Happen to Gold Miners?
Meanwhile, junior gold and silver mining stocks moved a bit higher yesterday, but they haven’t moved above the lower border of the accelerated trend channel (marked with orange). This means that this week’s upswing was likely just a verification of the breakdown below it.
Interestingly, if we see a decline soon, which is likely, it could become the right shoulder of a potential head-and-shoulders pattern. I marked the theoretical right shoulder with a red rectangle and the neck level with a blue rectangle.
In short, when we see a confirmed breakdown below $34 in the GDXJ, we’re likely to see a move even lower – to $30.5 or so. Then, I’d expect to see something similar to what we saw in August, earlier this year – a small correction that is followed by another decline.
This time, however, I think that the medium-term decline will be much bigger than what we saw in the middle of the year. This is based not just on the bullish medium-term outlook for the USD Index but also on the analogies in gold price, silver price, and precious metals mining stocks: to 2013 and 2008. It seems that the history is rhyming, and the correction right before the biggest slide appears to be over or about to be over. I’ll discuss more details in tomorrow’s analysis.
Thank you.
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care
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