It was only a few days ago that we saw a reversal to the upside that made the outlook bullish and we have already seen the opposite of it – the prices of gold, silver and – in particular – mining stocks formed a reversal to the downside. Were the bullish implications reversed as well?
Not really. Let’s take a look at the charts for details, starting with gold (charts courtesy of Stockcharts.com).
Gold’s Intraday Reversal
The intraday reversal was not a bearish sign because that’s quite common behavior for gold right after the bottom. We marked similar situations with black ellipses. It turned out that most important bottoms were followed by this kind of reaction. Consequently, there’s nothing bearish about today’s intraday move lower before the end of the session – it’s normal during the early part of an upswing.
It’s still likely that gold will top before the middle of the month and the upside target area is still $1,345 - $1,353.
Silver’s Intraday Reversal
In the case of silver, we can say the same thing. The silver rallies were very often preceded by significant intraday volatility and intraday reversals. This week’s action seems most similar to what happened in mid-December 2017 and in mid-March 2017. In both cases, silver rallied shortly thereafter, so the implications are bullish.
The target area is $16.90 - $17.
Gold Stocks’ Intraday Reversal
The reversal was most profound in the case of the miners, but it’s also something rather normal. The black ellipses feature similar quick downswings right after the initial rally – that seems to be the normal type of movement, not a sign of a top.
Please note that both silver and mining stocks outperformed gold yesterday. If it had been only silver that outperformed, the implications would have been bearish. But, since the miners also moved higher, the session appears rather normal. Gold might have been more tied to the performance of the USD Index. The latter moved higher, so the fact that gold didn’t decline more visibly is also somewhat bullish.
USD Index at Key Short-term Retracement
In terms of the RSI indicator, the situation in the USD Index has been overbought for days, but it was yesterday when it became really extreme. The USD Index moved slightly above the previous 2018 high and the 61.8% Fibonacci retracement). The breakout to new 2018 highs took place in terms of both: intraday highs and daily closing prices.
This may seem bullish, but the USD Index is already moving lower in today’s pre-market trading and the above has already been invalidated. The implications are therefore bearish, not bullish for the short term.
How low can the USD Index decline? There are two nearby support levels that seem strong enough to stop the short-term decline. The first one is the March high (90.89) and the second one is based on the declining blue support line that the USD Index broke recently. The move to it would serve as a final verification of the breakout. The line is currently at about 90.20, but before the USD gets there, it’s likely to be lower – perhaps at about 90.10.
It’s a tough call to say which of the above-mentioned targets is more probable, but it’s enough to say that when USD moves close to 91, it will mean that one should be on a lookout for bullish confirmations in case of the USD and bearish ones in case of the precious metals sector.
Summing up, yesterday’s intraday reversals may appear bearish at first sight, but in reality, they are normal in the early parts of short-term rallies in gold, silver and mining stocks. The situation in the USD Index suggests that we’re seeing the beginning of a corrective downswing and the opposite seems to be in store for the precious metals market. The short-term outlook for gold, silver, and mining stocks is bullish. The important thing is that this is most likely not a new medium-term upswing, but rather a short-term, two-week-long move.
All essays, research, and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve a high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.