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Don’t Get Yourself Into A Bull Trap With Gold

By Sunshine Profits (Przemyslaw Radomski, CFA)CommoditiesDec 01, 2021 01:48PM ET
www.investing.com/analysis/dont-get-yourself-into-a-bull-trap-with-gold-200610129
Don’t Get Yourself Into A Bull Trap With Gold
By Sunshine Profits (Przemyslaw Radomski, CFA)   |  Dec 01, 2021 01:48PM ET
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You see a commodity going down, then it reverses and starts teasing you with an upward move, only to end up declining further. Is this the case now?

I started my analysis yesterday with a question that I then answered, explaining why I thought that it wasn’t necessarily a good idea to take profits from one’s short positions at this time, as the corrective upswings could be nothing to write home about, and that it might not be that easy to get back in the short positions at better (higher) prices.

Well, yesterday’s session showed exactly what I meant, and the 4-hour chart found below provides the details.

GDX 240-Minute Chart.
GDX 240-Minute Chart.

The upper part of the chart features the GDX ETF (NYSE:GDX) (proxy for gold mining stocks), and the lower part features the GLD ETF (NYSE:GLD) (proxy for gold price itself.)

First of all, gold stocks were first to break below their rising support line – that happened a couple of days ago. Gold moved decisively below its rising support line only yesterday. This emphasizes that gold stocks are leading gold lower. This, in turn, is a bearish confirmation in itself, as that’s what tends to happen at the beginning of a bigger move lower.

The way both markets performed yesterday was also quite interesting.

In case of mining stocks, the intraday rally took GDX just slightly above its rising support line and then miners moved back down in a flash. In other words, if anyone had exited their short positions in order to re-enter them at higher prices, they had very little time to do so, and the most realistic version of this scenario is that they ended the session while missing the 1% decline in the GDX. The price of silver was down by just 4 cents, but still, it was a move lower despite an intraday rally.

In the case of GLD, one might have thought that gold was bound to rally since it stopped at its rising support line (based on the September and November lows). And gold even rallied by about $20 intraday, only to decline more and end yesterday’s session lower.

That was not a reversal. It was a bull trap.

And the most bearish thing about yesterday’s decline – and weakness? It happened while the US Dollar Index moved lower during the day. The USDX ended the day 0.33 lower, which “should have” triggered gold’s rally. Instead, gold declined, proving that it really wants to move lower. And suggesting that profits from one’s short positions in mining stocks are likely to become bigger.

Don’t get me wrong, I do think that we’ll see a counter-trend upswing, but it’s just not that likely that we’ll see it right now. For quite some time, I’ve been repeating that it’s likely that we’ll see some kind of corrective upswing once gold moves back to its yearly lows, and this remains to be the case.

Then, after the rebound, gold is likely to decline once again, perhaps to its final lows (for many years to come).

Don’t Get Yourself Into A Bull Trap With Gold
 

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Don’t Get Yourself Into A Bull Trap With Gold

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Comments (11)
Bernd Langer
Bernd Langer Dec 10, 2021 9:02AM ET
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Well, maybe not a bull trap after all ? I am lookong forward to new all-time-highs in Gold and Silver !
Mr Doodl
Mr Doodl Dec 02, 2021 2:02PM ET
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Mr Radomski, could we say that the huge H&S pattern in gold mining stocks is still intact?
simone scelsa
simone scelsa Dec 02, 2021 10:34AM ET
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Fundamentally:chances of 3 rate hikes are either: 1. high, if inflation runs hot even with new variants. Bullish for metals as it meas that real yields will stay in deep negative territory 2. low, if inflation is controlled by new lockdowns and restrictions. Bullish for metals as real yields will be even more negative.  There is no winning strategy for the FED at this point.
Waldemar Strey
Waldemar Strey Dec 02, 2021 5:24AM ET
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Unfortunately I have to admit that you have been right most of the time. I just hope that your stroke of luck will end soon
Mohamed Khalifa
_Khalifa_ Dec 01, 2021 11:47PM ET
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Thanks
Fabio falec
falec Dec 01, 2021 10:38PM ET
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You are stuck in your bear trap since a decade now.
ss yang
ss yang Dec 01, 2021 9:43PM ET
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Gold did not yet move decisively below its rising support line, if based on the August & September lows, It looks like simply touching the  support line. You would rather wait and watch some more days before decisive judgment.
ss yang
ss yang Dec 01, 2021 9:33PM ET
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Gold did not yet move decisively below its rising support line, if based on the August & September lows, It looks like simply touching the  support line.
ss yang
ss yang Dec 01, 2021 9:33PM ET
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c.c We'd rather wait and see some more days before better judgment.
Tyrone Jackson
Tyrone Jackson Dec 01, 2021 7:34PM ET
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The lower gold goes the more I buy Buy low sell high
Yankee Steve
Yankee Steve Dec 01, 2021 5:43PM ET
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The Fed can taper but it cannot raise rate. PERIOD! The bond market us telling the Fed you are making a huge mistake. Once the Frd reverse course it will be an even biggest bubble blown and buggest QE and the Fed lose all credibility and PM will spike. Until then tighten your seat belt.
Mir Chang
Mir Chang Dec 01, 2021 5:43PM ET
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The biggest QE were in 1934 and 2008. You sure do know youre saying.
Anasi Lindfors
Anasi Lindfors Dec 01, 2021 4:53PM ET
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Maeby you guys should focus on crypto dog and catcoins
 
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