Gold plunged on Tuesday to slightly below $1800 an ounce – the first time it did so since July. Successful vaccine tests have made investors bullish and there is hope on the horizon, but is that it ? Did the yellow metal decline on the news or are there other factors afoot ?

Approximately two weeks ago gold plunged about $100 and we received a few messages saying that there was nothing technical about this move, and it was just a reaction to the potential Covid-19 vaccine. Well, what about now? During today’s pre-market trading gold was down about $75 counting from Friday’s intraday high – what is this in response to? The U.S. Dollar Index and the stock market haven’t moved in any significant manner and no major news hit the market. Why did gold decline?

Because things are not as simple as news-price-reaction models would have one believe. People’s interpretation of events is what matters – whether we’re discussing the performance of markets or any other life situation in general.

Let’s consider a bank robbery, during which precisely one person gets shot and it’s in the arm - without any major impact on their life (heals relatively quickly, no long-lasting damage). Was this person unlucky or lucky?

The event was clear and objective. But what about the interpretation?

If one chooses the following interpretation: they could have been shot fatally and/or many other people could have been shot - then based on what really happened, this person was lucky.

However, if one chooses the following alternative: they could have simply stayed home or there might have been no robbery at all - then based on what really happened, this person was unlucky (wrong place, wrong time).

Therefore, the feelings and implications garnered from the situation depend entirely on the person and how they subjectively interpret these scenarios.

The above example (taken from the book, The Happiness Advantage by Shawn Achor, which I highly recommend) can be applied to markets as well. The markets are bombarded with news every day. Some news is more important than others, and sometimes when a more important event takes place (or when something trivial happens), the markets move. But they move because they (markets = market participants) interpret a given situation in a specific way. And the way they choose to interpret news and events depends on the stage of a particular cycle that they’re in.

Do the markets want to move lower? If so, they will overreact to the bearish pieces of news, and will more or less downplay the bullish ones – either immediately or shortly thereafter. Did gold plunge two weeks ago based on the news regarding the Covid-19 vaccine? Yes, but the extent of the decline was based on something deeper. It could have declined about $15, right?

The current price movement proves that what we saw two weeks ago was indeed much more than just a reaction to news. Gold just plunged even without any major news announcement. In fact, it declined even without the most obvious trigger that it was likely to get – a rally in the USD Index.

What does it all mean? It means that while it’s not possible to predict unexpected news like a Covid-19 vaccine, it’s still possible to detect a large part of the market’s movements. This is possible thanks to the techniques aimed at detecting at which stage the market is at and what it wants to do next. Some of these gold trading tips include looking at the relative performance of gold vs the USDX and gold miners vs. gold, but there are many additional ones that one can use.

All things considered, it should now be obvious to everyone that gold wanted – and likely still wants – to move lower before soaring.

So, what’s next?

First of all, I previously wrote that gold might bounce from about the $1,800 level. I think this is no longer likely. Why? Because gold is already almost right at this level and the USD Index hasn’t rallied yet.

The USD Index refused to decline below the mid-August lows and the invalidation of the tiny breakdown was enough to trigger the slide in gold. In yesterday’s analysis, I commented on the above chart in the following way:

At the moment of writing these words, the U.S. currency is testing the previous lows. It’s very near to the last daily close price of 2020. At the same time, the USDX is below the 92.5 level, which is much more important than it seems at the first sight. Previously, in 2020, the USDX managed to stay below this level for a maximum of 2 sessions. This is currently the fifth session below it. Normally, this could be viewed as an early sign of a breakdown, but I don’t think this would be the proper interpretation.

Given the Thanksgiving seasonality, and the fact that the small breakdown below 92.5 didn’t result in a breakdown below the previous price lows, it’s doubtful that there are any bearish implications at all. Besides, that’s not even the most important detail from the precious metals investors’ point of view.

The most important detail is that all these bearish moves in the USDX failed to trigger any decent rallies in gold, which shows that the latter simply doesn’t want to rally from here.

The fact that gold declined so much based on just the USD’s inability to decline more is very telling. Precisely, because it tells us how much gold actually wants to slide, and how impatient it got with the lack of bearish triggers.

Since gold broke below the previous lows practically on its own, and it seems that it’s about to get a bearish push from the rising USD Index (it seems to have completed its broad bottom). Consequently, it’s likely that it will decline more than just an additional $10 or so when the USDX finally rallies.

Actually, it’s likely to decline much more. Based on the 50% Fibonacci retracement based on the entire 2020 rally, on the 138.2% Fibonacci extension based on the initial August – September decline, and on the April high in terms of the daily closing prices, the next short-term target is at about $1,770.

Still, I wouldn’t be surprised to see gold decline even more before it reverses. Based on the declining trend channel (the line that’s parallel to the line based on the August and November highs), gold could decline to about $1,750 or so (another $50) before bouncing.

And yes, “bouncing” not “bottoming”. If gold was able to decline as much without the USD’s help, then it’s likely to slide much more when the USD Index finally rallies. The bullish potential for the latter is significant, so gold could continue to slide well below $1,700 before bottoming.

On the other hand, there are multiple techniques pointing to $1,700 as strong support, which suggests an important rebound from this level. Will it be THE bottom? It’s a tough call to say at this time. As I wrote many times previously, it will be gold’s ability to hold strong despite USD’s rallies that will be the final bullish call. At this time, we have gold declining even without the USD’s help.

Thank you for reading our free analysis today. Please note that the following is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

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Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

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The last time The Gold Miners Bullish Percent Index ($BPGDM) signaled overbought conditions, it was 2016 and another U.S. Presidential election was in full swing. Precious metals tumbled right after that. What's this $BPGDM you ask, and why is it important ? 

When making decisions regarding the gold mining stocks sector, some will choose to follow price actions while others will use indicator tools. The Gold Miners Bullish Percent Index ($BPGDM) is one such tool, essentially being a gauge of overbought and oversold conditions for the gold mining sector with readings plotted on a range between 0 and 100. Anything below 30 suggests oversold conditions while readings above 70 indicate an overbought situation, with a buy or sell signal being triggered when the index reaches an extreme level and then reverses. Because gold stocks move in tune with gold or silver, the index can be useful in determining the direction of the entire precious metals sector as well as acting like a crystal ball when comparing historical patterns.

Most recently, the $BPGDM showed the highest possible overbought reading, which gives us an indication that the outlook for the precious metals is bearish.

The excessive bullishness was present at the 2016 top as well and it didn’t cause the situation to be any less bearish in reality. All markets periodically get ahead of themselves regardless of how bullish the long-term outlook really is. Then, they correct. If the upswing was significant, the correction is also quite often significant.

Please note that back in 2016, there was an additional quick upswing before the slide and this additional upswing had caused the Gold Miners Bullish Percent Index to move up once again for a few days. It then declined once again. We saw something similar also this time. In this case, the move up took the index once again to the 100 level, while in 2016 this wasn’t the case. But still, the similarity remains present.

Back in 2016, when we saw this phenomenon, it was already after the top, and right before the big decline. Given the situation in the USD Index, it seems that we’re seeing the same thing also this time.

Please note that back in 2016, after the top, the buying opportunity didn’t present itself until the Gold Miners Bullish Percent Index was below 10. Currently, it’s above 50, so it seems that miners have a long way to go before they bottom (perhaps a few months – in analogy to how gold declined in 2016).

Last week, when I was preparing the analysis of the above GDX ETF chart, I commented on the late-week decline in the following way:

On Thursday (Nov 12^th) and Friday (Nov 13^th) of last week, miners moved and closed higher, but it’s important to note that their upswing was tiny and not accompanied by strong volume. In other words, it has all the characteristics of the breather that’s going to be followed by another move in the direction in which the market had been moving previously.

The previous move was down, so the implications are bearish.

The intraday nature of Friday’s and Thursday’s moves is also quite informative. In both cases miners moved higher – just as gold did – but then they declined, erasing a large part of the preceding gains before the end of the session. That’s yet another clue confirming the counter-trend nature of the recent upswing in the miners.

Something similar took place last week, and thus today’s comments will be similar. Gold miners declined early during the initial part of the week, and then they bounced right before the weekend. The volume was decent, but nothing to call home about. What does it mean? It means that we have just likely seen a regular breather that is likely to be followed by further declines.

As indicated earlier, the biggest part of the decline might start shortly after Thanksgiving.

Also, let’s not forget that the GDX ETF has recently invalidated the breakout above the 61.8% Fibonacci retracement based on the 2011 – 2016 decline.

When GDX approached its 38.2% Fibonacci retracement, it declined sharply – it was right after the 2016 top. Are we seeing the 2020 top right now? This is quite possible – PMs are likely to decline after the sharp upswing, and since there is just more than one month left before the year ends, it might be the case that they move north of the recent highs only in 2021.

Either way, miners’ inability to move above the 61.8% Fibonacci retracement level and their invalidation of the tiny breakout is a bearish sign.

The same goes for miners’ inability to stay above the rising support line – the line that’s parallel to the line based on the 2016 and 2020 lows.

Let’s proceed to metals themselves.

Just as miners, gold seems to be taking a breather. The breather was quite likely to occur after such a big daily (Nov 9^th) decline, and there’s not much more that we can say about it per se.

However, the size of the counter-trend rally is quite interesting when we compare it to the size of the corrective upswing in silver.

Please note that gold is more or less in the midway between the bottom and the 38.2% Fibonacci retracement based on the August – November decline.

Silver, on the other hand, was much higher in relative terms.

In fact, last Monday (Nov 16th), silver even moved slightly above the 38.2% Fibonacci retracement.

What does it mean? It means that silver was outperforming gold on a very short-term basis. This might not be exciting to those who are new to the precious metals market, but it should be very exciting for those who have been following my analyses for some time. Silver tends to outperform gold on a short-term basis right before declines. Consequently, the above serves as a bearish confirmation.

Silver broke below the rising short-term support line since that time, which suggests that the days of the counter-trend rally are numbered. Based on the analogy to other U.S. election years, it seems that we won’t have to wait for long.

Thank you for reading our free analysis today. Please note that the following is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

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Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager

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Thanksgiving is fast approaching, coronavirus cases are surging and investor excitement around new vaccines is waning as it will take well into 2021 to administer them. The precious metals just don’t have enough steam to keep rolling into December without declining further. Not even slight upswings in the stock market or declines in the U.S. Dollar Index are enough to boost the PMs.

Today’s analysis is going to be very brief, since during yesterday’s session we simply saw a repeat of the same bearish indications, on which I had already commented a few times. Practically everything that I have written yesterday (Nov 19th) remains up-to-date.

Despite its early gains, the U.S. Dollar Index ended yesterday’s session slightly lower. If gold wanted to rally from here, it would have done exactly that. What did it do? It declined, and the same went for silver and mining stocks.

The miners could have rallied based on the small daily upswing in the general stock market, but they didn’t.

The above, plus multiple other reasons that I outlined throughout the week suggest that the precious metals sector is about to slide. All it takes is a bearish spark. And based on the broad bottom in the USD Index (and the fact that the sentiment for it is extremely bearish right now), it seems that the PMs are going to get it sooner or later.

Based on the analysis of the current seasonal tendencies, it seems that we won’t have to wait for long either. Gold tends to slide around Thanksgiving, and while a decline usually takes place shortly thereafter, we can’t rule one out beforehand.

If we were to pick one specific scenario, we’d say that the big slide will start immediately after or shortly after Thanksgiving, but given the likely prospect of that happening earlier, we don’t suggest adjusting the current short positions anyway.

As always, we’ll keep our subscribers updated.

Letters to the Editor

Q: In your summary of your Gold alert you state that when the price of Gold falls below $1700 it will rebound. It’s not clear to me if that should be the final bottom or after a rebound the final bottom will follow in 1-6 weeks?

Also, do you see an approximate bottom for silver?

A: It seems most likely that this would be the final bottom. I wouldn’t rule out a bigger slide, say to $1,600 or even $1,500 during the volatile decline (remember, gold just declined about $100 on Nov 9, so it’s definitely capable of moving in a volatile manner), but I think that once this bottom is in, a new powerful bull market will start.

Again, it is not the price level per se that will be most important. The key thing will be to see gold being able to recover (and perhaps rally) despite a continuation of the rally in the USD Index – just like what we saw during the March 2020 bottom.

As far as silver is concerned, the downside target is even less clear. It could bottom between $11 and $19, which is an extremely wide target area. If the general stock market plunges, the $15 and below becomes likely. If the general stock market holds up strongly, the $19 and its proximity become the more likely target. Either way, once miners show strength relative to gold and gold shows strength relative to the USD Index, we’ll likely have a tremendous buying opportunity in gold, silver, and mining stocks, regardless of where silver is going to trade. For now, we see exactly the opposite, and – in my opinion – the great trading opportunity is on the short side.

The price targets for silver should become clearer once we move closer to them and we’ll keep our subscribers updated.

Thank you for reading our free analysis today. Please note that the following is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

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Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager

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Despite a recent decline in the U.S. Dollar Index and small jumps and rallies aside, miners have not moved upwards, defying the usual logic that as the USD Index moves down, precious metals move up. Bearish headwinds for the coming weeks remain strong, a harbinger of a longer slide.

In yesterday’s analysis, I told you about the bearish clues coming from the relative performance of miners vs. gold and stocks, and gold vs. the USD Index. In today’s analysis, I’m going to tell you that we saw even more of those signs, which strengthened the bearish implications of the previous ones. This in turn adds to the strength of the other – more profound – bearish factors such as the broad bottom in the USD Index.

Let’s start today’s analysis by saying that miners have just closed at the second lowest daily close since early July.

This fact alone should make one question the validity of any bullish argument for the short term. Sure, gold, silver, and mining stocks have explosive potential in the following years. The world is likely to try an attempt to inflate its trouble away and gold is likely to greatly benefit from it along with the rest of the precious metals sector. But in the short term, markets can get ahead of themselves, just like they did in August. They then have to correct before rallying once again.

And if during these times they get a powerful bearish boost, for instance from a rallying USD Index, the corrective downswing could be profound.

One more detail about the miners – please note that it’s the first time when the GDX ETF declined once again without a meaningful rally after bottoming near the $37 level. Both previous bottoms: the one that we saw in September and the other in late October, were followed by rallies above $40. This time, the rally was tiny – and it was such even though the USD Index declined and the general stock market moved higher in the last several days.

The short-term indications that I’ve been commenting on are pointing to the bigger decline having already started, but also being relatively far from over. In fact, based on miners’ weak performance it seems that they just can’t wait to slide further.

Please note that yesterday was yet another day when miners moved higher initially only to decline during the day.

The miners’ daily decline is particularly bearish given no major decline in stocks (just a tiny move lower) and a move lower in the USD Index. The latter “should have” made gold, silver, and miners increase in value. Instead, we saw declines.

Taking in the last several days, silver is stronger than gold while miners are weaker than gold. As I discussed in my previous analyses, that’s exactly what tends to take place right before bigger declines, so the implications are bearish.

Thank you for reading our free analysis today. Please note that the following is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim target for gold that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

Sincerely,
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager

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