Just a quick note about today's early rally in gold. In short, it's most likely because of China's plan to impose a 25% tariff rate on a portion of $60 billion worth of US goods starting June 1. Will this really be the case? The market doesn't know, but it was shocked today, and gold soared.

Silver didn't soar - it just erased the pre-market decline, nothing more. At the moment of writing these words, we only have 10 minutes of trading available, but we already see that the reaction in the mining stocks is far from spectacular. The GDX ETF has only corrected about 50% of the recent 3-day decline. There was no break above even last week's high.

What does it all mean? It means another day or a few days of delay of the massive decline. It doesn't change its extent or severity - it simply means a little more patience is necessary.

Let's keep in mind that geopolitical events rarely have lasting impact on the market - https://www.sunshineprofits.com/gold-silver/dictionary/gold-geopolitical-risk/ - and this time is not likely to be different.

You may be wondering, however, if gold's rally doesn't invalidate the breakdown below the neck level of the head-and-shoulders pattern, thus making it irrelevant. It doesn't seem likely. The breakdown was confirmed by many days of trading and a few attempts to break above it. Even if we saw a quick break above the neck level in intraday terms, there was no close above the line based on the closing prices. This line is currently at about $1,295 and gold continuous futures contract is currently trading at $1,298 - just $3 above it. We might easily see a decline in the following hours and a daily close either at or below the neck level. In this case, there would be no changes in terms of formation's importance.

Even if gold closed above $1,295, it would not necessarily change the outlook, because of the preceding confirmations of the breakdown. It would take a really big move above the neck level to change the outlook in a single day. For instance, a close above $1,310 would be such a move. We don't expect to see it.

So, all in all, the very bearish outlook remains intact and so do our downside price targets. Today's move up in gold should be viewed as an inherent part of market's short-term unpredictability. The only thing that it might change is the day on which the slide in gold accelerates. Namely, it could be delayed a few days, perhaps until the end of the week, when the options expire. As always, we'll keep you - our subscribers - informed.

Thank you.

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