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Does Gold Want To Move Lower?

By Sunshine Profits (Przemyslaw Radomski, CFA)CommoditiesApr 14, 2021 01:33PM ET
www.investing.com/analysis/does-gold-want-to-move-lower-200573060
Does Gold Want To Move Lower?
By Sunshine Profits (Przemyslaw Radomski, CFA)   |  Apr 14, 2021 01:33PM ET
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Gold’s slight rally might be getting some people excited, but appearances can be deceiving. U.S. Dollar Index action hints at gold really wanting to move lower.

The yellow metal has climbed, but only with lacklustre energy. If the USD Index is not rising, then gold should really be shooting up and breaking new monthly highs, but it isn’t. Readers have been asking what’s happening and some have been concerned with gold’s apparent strength. So, let’s break it down.

History tends to rhyme and what happened before, will – to some degree – happen again. Gold is not immune to this concept, and the current implications are bearish.

Let’s jump right into the charts for details.

Gold Daily Chart.
Gold Daily Chart.

Gold topped right at its triangle-vertex-based reversal, just like it did in mid-March and in early January (please note the points that are marked on the above chart for confirmation – they are described in red). That happened on Thursday (April 8), and since that time gold has continued to move lower.

Gold invalidated the breakout above its mid-March highs, proving that what we saw was nothing more than just an ABC (zigzag) correction within a bigger downswing. The moves that follow such corrections are likely to be similar to the moves that precede it. In this case, the move that preceded the correction was the 2021 decline of more than $150. This means that another $150+ decline could have just begun.

It might appear bullish that gold rallied yesterday (April 13), but it only appears this way until one compares this rally with what happened in the USD Index during the same time. Paying attention to today’s pre-market price moves further emphasizes the fake nature of yesterday’s rally in gold.

The point is not that gold rallied, but that it hasn’t rallied enough.

U.S. Dollar Daily Chart.
U.S. Dollar Daily Chart.

During yesterday’s session, the USD Index moved to new monthly lows and this decline continued in today’s pre-market trading. Consequently, if gold was at least reacting to the USD’s movement “normally,” it should move to new monthly highs. If gold “wanted” to rally, it would have likely exploded to the upside. But what happened instead? Gold moved higher only somewhat yesterday – not to new monthly highs – and in today’s pre-market trading it’s actually slightly lower.

This tells us that gold “wants” to move lower now.

The USD Index moved lower, and it can move even lower on a very short-term basis, perhaps to the 50% Fibonacci retracement based on the entire 2021 rally, and the previous lows. And what would be the likely effect on gold? Based on what we saw yesterday, and what we see so far today, it seems that gold will likely ignore this decline in the USD Index, while waiting for the latter to finally show strength – so that it (gold) could decline.

After all, gold has already topped right at its triangle-vertex-based reversal point. Consequently, it’s no wonder that it now continues to trade sideways, waiting for a trigger to move much lower.

Moreover, please note that the recent zigzag makes the situation similar (approximately symmetrical) to what we saw about a year ago – between April and early June. Once gold breaks to new yearly lows, one could view this as a breakdown below the neckline of a major head-and-shoulders pattern where the April 2020 – June 2020 and the recent consolidations are the shoulders of the pattern. Based on such a pattern, gold would be likely to slide profoundly, probably well below $1,500. And the relative performance of gold versus the USD Index tells us that such a short-term breakdown (to new yearly lows) is a likely outcome in the following weeks.

Gold Miners Daily Chart.
Gold Miners Daily Chart.

Gold stocks also failed to rally to new monthly highs, and they seem to be forming a relatively broad topping pattern, just as they did in mid-March and at the beginning of the year.

The sell signal from the Stochastic indicator as well as the fact that miners failed to invalidate the breakdown below their broad head-and-shoulders pattern points to a bearish outlook for the following weeks (and perhaps months).

All in all, the outlook for the precious metals market remains bearish and the recent rally didn’t change anything.

Does Gold Want To Move Lower?
 

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Does Gold Want To Move Lower?

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Comments (11)
Paul Miles
Paul Miles Apr 16, 2021 8:32AM ET
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but you do have pretty charts maybe if you add more color to them I will sell my positions
Paul Miles
Paul Miles Apr 16, 2021 8:32AM ET
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but thank you for your opinion so you don't block my text :-)
Paul Miles
Paul Miles Apr 16, 2021 8:31AM ET
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are you still doing this chart thing. and trying to Short the most undervalued assets in the market. you can't play poker with central banks that print money
Paul Miles
Paul Miles Apr 16, 2021 8:31AM ET
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remember this is just my humble opinion. posted on your humble opinion no reason to report me as spam I just think people need to know both sides
Jan Buyle
Jan Buyle Apr 16, 2021 5:21AM ET
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Always fun reading your analysis. I don't know how you do it, but over 95% of your posts turn out the other way than you predicted within days. Those who follow you are all broke... Don't believe me, just check all his posts of the last year, including predictions of $9 silver (it is 26 now... lol) and $900 dollar (ir is 1.750 now... more lol)
Jason DeLucia
Jason DeLucia Apr 15, 2021 11:48PM ET
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2/10 for unoriginality and repetiveness
Bernd Langer
Bernd Langer Apr 15, 2021 9:45AM ET
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Everytime I read your negative reviews on Gold, I am encouraged to go long. Thank You!
I Nyoman Suryasa
I Nyoman Suryasa Apr 15, 2021 1:57AM ET
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i think gold down trend. because can't break resistance daily.if gold up.gold must down to support and go breakout resistance daily for higher high.
Mike Jones
Mike Jones Apr 14, 2021 8:25PM ET
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Wouldn't have anything to do with the new typeof "Gold", would it? hmmmm...
Mike Jones
Mike Jones Apr 14, 2021 8:24PM ET
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Wouldn't have anything to do with bitcoin, would it? hmmmm...
Mike Okane
Mike Okane Apr 14, 2021 7:23PM ET
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It does not “want” anything at all.
King Tolba
King Tolba Apr 14, 2021 2:36PM ET
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Nobody can technically analyze gold because it is a demonic commodity that always goes against expectations. Everything is now set for the rise of gold, but it does not ascend. We pray to God to burn his demon and to raise the gold so that we will remain alive.
Kevin McCarthy
Kevin McCarthy Apr 14, 2021 2:17PM ET
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you're aCFA and you tell people gold should follow the DXY? forshame on you. you know the DXY doesn't account for gold and only has a weak correlation based on gold's correlation to yields.
Llewellyn Kruger
Llewellyn Kruger Apr 14, 2021 2:17PM ET
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Keven, look at the FED's "Gold Prices and U.S. Dollar Correlation" graph. It's pretty clear the DXY has a significant effect on the price of gold.
SOHAIL WAZIR
SOHAIL WAZIR Apr 14, 2021 2:17PM ET
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lower dxy means dollar is weakening against basket of currencies only. but the fact remains that dollar is weakening while gold is not getting strengthened at the moment.
YouTube Account
YouTube Account Apr 14, 2021 2:17PM ET
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you guys realize you're talking about shares in a trust, right?
 
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