In yesterday’s alert, we wrote that the decline in the USD Index was likely a temporary phenomenon based on the investor’s needless overreaction – the USD reversed and more than erased this week’s decline. The metals’ reaction was also in tune with our expectations – they reversed. Was this just a one-day phenomenon and will gold rally based on its recent breakout above its 50-day moving average or can we expect more declines in the following days?
The latter scenario seems much more probable. We’ve seen gold hit a strong resistance level (a combination of such levels), a support in the USD Index, reversals in the latter and in silver around their turning points, underperformance of mining stocks relative to gold and very short-term outperformance of silver. Additionally, we saw bearish confirmations from a few ratios and gold’s reaction to the USD’s declines was temporarily weakened. All the above happened as precious metals were making headlines and among increased interest in the sector. That’s a very bearish combination – the outlook is more bearish than it was in the past days and thus we are now increasing the size of the speculative short position.