The gold volatility index moved to a new all-time low and there was no meaningful action in gold recently. Well, we profited on the decline and on the following upswing, but the price action that we saw was nothing to call home about. For months, gold has been moving around the $1,300 per ounce level and it’s trading relatively close to it also today. But, will this action persist for much longer? Not likely. It seems that something is about to hit the fan.
After 2009, golden crosses have been seen at or close to local tops – in particular, the 2012 top is clearly seen along with a supposed “buy” signal from the golden cross. In 2014 the gold market formed a golden cross a few times, but the rallies were not sustained. This means that the golden cross is not a reliable bullish indicator and viewing it as such does not seem like a profitable thing to do.
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 U.S. Dollar Index confirmed the breakout above March highs, silver outperformed temporarily, miners underperformed and… Despite this bearish combination, precious metals didn’t decline. Why wasn’t that the case? Will they still slide or will they rally from here? Let’s
The end of the previous week was rich in signals as gold, silver and mining stocks all reversed along with the USD Index. Gold closed the week below the rising support line and the implications should not be ignored even by those who usually focus on fundamentals alone.
Quite a few rallies in the recent months were preceded by the mining stocks’ outperformance relative to gold and we just saw the same kind of phenomenon on Wednesday – GDX rallied while gold declined. Is the bottom in? Miners indeed moved higher yesterday, which was nothing unexpected. In yesterday’s alert we explained which technical phenomenon made it quite possible.
There are quite a few bearish indications that suggest lower precious metals prices are just around the corner. First of all, the USD Index broke above the triangle consolidation pattern and the breakout is almost confirmed (or confirmed, depending on the approach – some suggest waiting for 2 closes above a certain level and some prefer 3 closes; in the case of the precious metals market we found the 3-day rule to be more useful, but it’s not as clear in the case of currency markets).