Gold, mining stocks, and the USD Index have not been doing much recently. However, yesterday, this “inactivity” took quite a decisive shape, and unfortunately, things are not looking good for gold.

As you are all aware, gold tends to move conversely to the USD Index. Therefore, it’s useful to focus on the latter for signs that would influence the former. So, what does the current USDX outlook look like?

Well, it looks like the USDX is about to rally. It broke above its medium-term resistance line and verified this breakout. This verification took the form of a decline based on a more recent short-term breakout, which seems to have ended.

From a medium-term point of view, since the market had to correct before moving higher again, it’s no wonder that it had to do the same from a short-term perspective as well.

Based on the chart above, the outlook for the USD Index is bullish.

But, before we move to gold, please pay attention to the shape of the last candlestick. The USDX moved relatively lower, almost touching the declining support line.

Considering the above, one might have expected to see a visible daily gain in gold – maybe with a small correction, but again, with a substantial gain in terms of daily closing prices. So, did we witness something like that?

Not really.

Gold was marginally up, which is a notable bearish indication. The bearish confirmation comes from the fact that gold tried and failed to break above the declining resistance line.

Above the resistance line, gold took only a small comeback from the USD Index that made gold invalidate its intraday breakout. It is a clear sign of weakness.

And you know what precious metals sector sign of weakness is even more visible? It’s yesterday’s action in gold and silver mining stocks.

Namely, miners have declined adamantly– much more visibly than gold. This type of underperformance is what precedes the decline. Or, more precisely, it is often the very initial part of a more significant decline.

That is a perfect cherry on the bearish analytical cake that we’ve “baked” in our previous analyses. Over a week ago, we wrote that the situation was reminiscent of the earlier cases, marked with blue ellipses. Namely, the GDX ETF moved only a tad higher, which was the final top for at least some time. We argued that the strong daily rally that started with a bullish price gap was not so bullish after all. Indeed, over a week later, once again, miners are visibly lower.

Of course, based i.a. in the USDX situation, most probably, this is not the end of the miners’ decline, but rather, it is just the beginning. The situation relative to the 50-day moving average (marked with blue) confirms it. After all, back in March, miners moved slightly above their 50-day moving average only to plunge shortly after that, and the current situation is the only similar case to the above. There were no other cases when the miners broke below this MA and then moved back up slightly above it, declining once again afterward.

And due to the above, if the situation wasn’t bearish enough, the Stochastic indicator based on the GDX ETF has just flashed a clear sell signal.

All in all, currently, the outlook for the precious metals market remains bearish.

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

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Is silver just an industrial metal?

Not only an industrial metal, and not just any industrial metal. It served as money for centuries, much longer than the fiat currencies have been used. Its specific properties are also widely used in many industries (best conductor of heat and electricity), and perhaps the only more versatile commodity than silver is crude oil.

The first verse of the Correlation Matrix shows just how closely silver moves along with gold – the flagship monetary metal. The link is not particularly strong in the long run, but it is still strong enough despite that.

And what about the link with copper – which we’ll use as a proxy for the industrial metals?

There are times when silver and copper move in opposite directions. However, merely stating that they move in adverse directions for a few days is not particularly informative. It is just a very brief move that is being examined, and both moves could have been just random noise.

Just like the existence of snowballs doesn’t negate the fact that ice caps are melting at an accelerating rate, observing just a few days when silver and copper move in the opposite directions doesn’t mean that they will move in the opposite directions for longer.

Taking the last few years into account, there were periods when silver moved together with copper (recently) and periods when it moved in the opposite direction (in late 2016).

There were also times when both markets moved relatively independently from each other, and there were times when one market led the other. The latter would be quite informative if it wasn’t for the fact that sometimes silver leads copper, and sometimes it’s the other way around.

The bottom part of the above chart tells us that copper and silver are positively correlated for most of the time, but the link is far from being carved in stone.

So, what can the link between copper and silver tell us? Exactly what we wrote previously. Namely, silver is an industrial metal, but not only that. It’s also a monetary metal. In other words, silver has a dual nature.

What does the above mean from here on out? That its performance could be less than perfect if the general stock market slides, but it will most probably catch up with gold in a major way, once stocks finally bottom and start to climb once again.

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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In my previous analyses, I emphasized that gold’s strength is most likely a momentary one, especially if we consider the USDX. Attesting to that are the invalidated gold breakout and today’s U.S. currency action.

Let’s begin with the latter.

Looking at the index from a very short-term perspective (the chart above is based on 4-hour candlesticks), it is evident that the USD Index just broke above its short-term resistance line and verified the breakout. The verification took the form of a quick move back to the previously broken line and a subsequent sharp upswing.

This is the final short-term confirmation that the USDX can potentially move higher.

Predicated on the strong negative correlations between gold and the USDX (second row in the table below), the above will most likely lead to lower gold prices.

Correlation does not imply causation. However, in the link between gold and USDX, it’s pretty straightforward that the U.S. currency’s strength affects the gold price, not the other way around. After all, gold is priced in U.S. dollars, at least in the current monetary system.

The small breakout in gold (above the declining resistance line) was invalidated, which means that the yellow metal price will most likely go lower.

While breakouts and breakdowns require confirmations to be necessary, invalidations don’t. Therefore, what happened in gold is already bearish in the near future.

Silver is also moving lower in today’s pre-market trading. While these moves are not huge yet, the decline is likely to accelerate based on the following two reasons:

1. The breakdown below the rising medium-term support line was already confirmed.
2. A considerable amount of time has already passed, and the flag-shaped consolidation that started in late September might already be over.

All in all, it seems that the outlook for the precious metals market remains 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.

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

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In Monday’s analysis, we’ve explained why rising stock prices might not lead to significantly higher gold prices after all before the latter turned south again. The manner in which this week’s trading was conducted seems to have confirmed our indications. With stocks (S&P 500) up by 1%, and Monday’s close as its second-highest daily close this index has made – ever, did gold rallied that strongly as well? Not by any means. As a matter of fact, gold futures went down by 1.64% ($31.60).

This relative performance is a bearish indication, but it’s not as bearish as the fact that gold has just invalidated its small breakout above the declining resistance line.

At the same time, this means that:

• Gold invalidated its small short-term breakout. However, the breakdown below the rising medium-term support line was not invalidated.
• Silver declined after verifying its breakdown below the rising medium-term support line.
• Miners are already well after the critical breakdown below the rising medium-term support line.

It all happened while stocks moved close to their all-time highs. Clearly, the rising stocks won’t be able to push the precious metals sector higher on their own.

In most cases, the most significant signs come from the USD Index, presented on the multi-chart above. However, to check what comes next for the U.S. currency in the near future, we’ll have to zoom in.

If we look at the index from a very short-term perspective (the chart above is based on 4-hour candlesticks), we can see that the USD Index just broke above its short-term resistance line and is currently verifying this breakout.

This means that while we might see a pause in both: USDX and the precious metals sector in the next several hours (or few days), more decisive moves are likely to follow then. By all means, in case of the USDX, this move is likely to be an upward one, and in case of the PMs, it will most probably be towards the downside.

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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