In today’s Gold & Silver Trading Alert we wrote that we will be sending out another alert about 1-2 hours before the markets close - so we deliver.
We hoped to see some kind of bearish confirmations (or invalidations) during today’s session, which would result in opening another speculative position (likely opening a short position in the precious metals sector). However, today’s session didn’t provide us with a confirmation to say the least. Conversely, today’s session is something that by itself will likely require some sort of confirmation in the following days.
You can read more about the likely reason behind today’s volatility in the currency market and in the precious metals sector here:
Long story short, ECB provided the markets with another round of financial stimulus, but at the same time Mario Draghi said that the rates will likely not be lowered further. The markets appear to have focused on the latter and actually viewed today’s comments as bullish for the euro (and thus bearish for the USD Index). Was this reaction really justified? In our view, not really. Firstly, this can be changed overnight, as soon as any economic indicator suggest that the economy is worse than “booming”, so we don’t really trust the “ECB is done with the rate cuts” scenario. Secondly, the comments are likely what they were agreed to be between the Powers That Be.
Given the current economic problems of the Eurozone, ECB had little choice other than to stimulate the economy further (given the current mainstream way of thinking about economic policies). At the same time if they didn’t want the euro to plunge, so they simply said something that is not really binding, but they made it appear as such. What’s next? The market will likely realize that today’s rally in the euro based on the “it’s over” comments is overdone and then the move will be at least corrected (likely cancelled, but not necessarily right away).
What are the implications for the precious metals market? The implication is that the short-term outlook did not clarify, but remains unclear. We wrote that it was still possible for gold to move higher without invalidating its medium-term trend and it appears that this is the case. The $1,328 could still be reached temporarily, but if we see important bearish confirmations sooner, we will likely open short positions - so far, we have not seen such confirmations. We will analyze today’s price moves thoroughly and will report to you in tomorrow’s alert.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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