A picture is worth a thousand words, so let's get straight to the gold chart itself.

As far as gold is concerned, we previously wrote the following:

After topping at its triangle-vertex-based reversal, gold declined and is now trading at its declining resistance line, which turned into support. This could generate a rebound, especially that at the same time gold finally broke below the rising medium-term support line. This breakdown is a big deal, as all previous attempts were invalidated.

Since this support is so strong, we expect a rebound, quite possibly back to it. Such a verification (if gold doesn't invalidate the breakdown that is) would be very bearish for the short term.

Gold paused after moving below the above-mentioned support line, and the breakdown was verified. This is very bearish for the short term.

Gold moved back and forth at the most recent triangle-vertex-based reversal, which is a bearish sign. Why would this be the case? Because gold had declined previously, which means that it "should have" rallied at the most recent turning point. It didn't, which shows short-term weakness.

The next support is at $1,700, which is where - approximately - gold topped and bottomed multiple times earlier this year. That's also the 61.8% Fibonacci retracement based on this year's upswing.

The $1,700 level is additionally confirmed by the 38.2% Fibonacci retracement based on the entire 2015 - 2020 rally.

There's also possibility that gold would decline to the $1,500 - $1,600 area or so (50% Fibonacci retracement and the price level to which gold declined initially in 2011), but based on the size of the recent upswing, we no longer think that this scenario is the most likely one.

Gold's very long-term turning point is here and since the most recent move has definitely been to the upside, its implications are bearish.

We used the purple lines to mark the previous price moves that followed gold's long-term turning points, and we copied them to the current situation. We copied both the rallies and declines, which is why it seems that some moves would suggest that gold moves back in time - the point is to show how important the turning point is in general.

The big change here is that due to gold's big rally, we moved our downside target for it higher. Based on the information that we have available right now, it seems likely that gold will bottom close to the $1,700 level. That's very much in tune with how much gold moved after the previous long-term turning points.

Also, while we're discussing the long-term charts, please note the most important detail that you can see on the gold, silver, and mining stock charts, is hidden in plain sight. Please note how much silver and miners rallied.

The analogy to the price moves after the previous turning points didn't change, but since the starting point is much higher, the downside target is also higher.

Speaking of upside targets, two weeks ago, we wrote the following:

Based on gold's Fibonacci extensions and the previous major highs and lows (the 2018 high and late-2019 low along with the 2020 low), we get a nearby upside target of $2085. At the moment of writing these words, gold is trading at $2044. Given this week's volatility, it could even be a matter of hours before gold reaches the above-mentioned target and reverses. Taking closing prices into account, gold is up by $35, so if it reverses significantly, we would be likely to see a powerful weekly reversal candlestick and one that causes gold to decline in the following weeks.

That's more or less what happened. Gold topped at $2,089.20. It then declined quite visibly and closed last week at about $1,950.

Before moving to silver, we would like to discuss something very important regarding the most recent rally in gold and the subsequent consolidation.

Do you get the feeling that you have already seen gold perform this way before? Because you did.

The history rhymes, but this time, the similarity is quite shocking.

We copied the short-term chart and pasted it on the long-term chart above and next to the 2011 top. We pasted it twice, so that you can easily compare gold's performance in both cases in terms of both: price and time.

They are very similar to say the least. Yes, these patterns happened over different periods, but this doesn't matter. Markets are self-similar, which is why you can see similar short-term trends and long-term trends (with regard to their shapes). Consequently, comparing patterns of similar shape makes sense even if they form over different timeframes.

After a sharp rally, gold declined quickly. Then we saw a rebound, and a move back to the previous low. Then, after a bit longer time, gold moved close to the most recent high and started its final decline. This decline was less volatile than the initial slide. That's what happened when gold topped in 2011 (and in the following years), and that's what happened also this year. Ok, after the initial decline from the 2011 top, we saw two initial reactive rallies and in 2020 there was just one, but it didn't change the similarity with regard to time.

The patterns of this level of similarity are rare, and when they do finally take place, they tend to be remarkably precise with regard to the follow-up action.

What is likely to follow based on this pattern, is that we're likely to see the end of the slower decline, which will be followed by a big and sharp decline - similarly to what we saw in 2013.

How low could gold slide based on this similarity? Back in 2013, gold declined approximately to the 61.8% Fibonacci retracement based on the preceding rally (the one that started in 2008), so that's the natural target also this time.

And we already wrote about this particular retracement - it's approximately at the $1,700 level. This has been our downside target for weeks, and it was just confirmed by this precise self-similar technique.

Another interesting point is that gold made an interim low close to the 50% retracement and the previous lows. Applying this to the current situation suggests that we could see a smaller rebound when gold moves to about $1,760 - $1,800.

The interim downside target has very important trading implications. Even though gold might rebound just temporarily, something much more profound is likely to take place in case of mining stocks and silver. You will find details in today's flagship Gold & Silver Trading Alert. We invite you to subscribe and read today's issue right away.

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

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Yesterday, we wrote the following regarding the USD Index chart:

The move below the mid-August low in the USD Index is a very recent and likely a very temporary development. Let's keep in mind the long-term USD Index chart. Combining the above with the - more important - long-term picture, it seems likely that the USDX will invalidate the breakdown shortly.

Remember when in early 2018, we wrote that the USD Index was bottoming due to a very powerful combination of support levels? Practically nobody wanted to read that as everyone "knew" that the USD Index is going to fall below 80. We were notified that people were hating on us in some blog comments for disclosing our opinion - that the USD Index was bottoming, and gold was topping. People were very unhappy with us writing that day after day, even though the USD Index refused to soar, and gold was not declining.

Well, it's the same right now.

The USD Index is at a powerful combination of support levels. One of them is the rising, long-term, black support line that's based on the 2011 and 2014 bottoms.

The other major, long-term factor is the proximity to the 92 level - that's when gold topped in 2004, 2005, and where it - approximately - bottomed in 2015, and 2016.

The USDX just moved to these profound support levels, and it's very oversold on a short-term basis. It all happened in the middle of the year, which is when the USDX formed major bottoms on many occasions. This makes a short-term rally here very likely.

While it might not be visible at the first sight (you can click on the chart to enlarge it), the USD Index moved briefly below the long-term, black support line and then it invalidated this breakdown before the end of the week. This is a very bullish indication for the next few weeks.

Based on the most recent price moves, the USDX is once again below the above-mentioned strong rising support line, but we doubt that this breakdown would hold. We expect to see an invalidation thereof that is followed by a rally.

Please note that the major bottoms in the USD Index that formed in the middle of previous years often took form of broad bottoms. Consequently, the current back and forth trading is not that surprising. This includes the 2008, 2011, and 2018 bottoms.

And that's what followed:

The USD Index invalidated all short-term breakdowns:

• Below the mid-August low
• Below the late-July and early-August lows
• Below the declining red support line

The implications of these invalidations are very bullish, especially that we saw this show of USDX's resilience right after series of bearish news, for instance in the form of the dovish change in the Fed's approach.

The bullish implications for the USD Index are bearish for the precious metals sector.

Yesterday, we reported the following about gold:

Still, the more important (based on a more profound move - the early-August decline) 61.8% Fibonacci retracement was just reached, without being broken. Consequently, the overnight rally was not as bullish as it may seem at first sight. Moreover, let's keep in mind that gold is just before the first of the triangle-vertex based turning points, which means that it's likely to reverse shortly. Since the preceding move was to the upside, gold is likely just before a top.

And on Monday, we wrote the following:

Also, as you can see on the chart above, there's a vertex-based reversal "scheduled" for the next several days. In fact, there are two such reversals. This means that gold's recent upswing is likely to be reversed rather sooner than later. A tiny move below the previous lows in the USD Index and then its profound invalidation would serve as a perfect trigger for gold's decline.

We saw exactly that.

Gold topped right at the triangle-vertex-based reversal when the USD Index invalidated its breakdowns. It also happened at the 61.8% Fibonacci retracement.

The final top in gold is most likely in, and we expect the yellow metal to slide shortly. The confirmation of the breakdown below the rising support line based on the March and June lows will likely serve as the "go!" of the move. What we saw recently is already the "get ready, set" part.

The implications are most profound for the mining stocks, and the full version of today's analysis includes them along with miners' price target. We invite you to subscribe and read today's issue right away.

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

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