Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

New Year, Old Gold? The Devil Is In The Patterns

By Sunshine Profits (Przemyslaw Radomski, CFA)CommoditiesJan 04, 2022 03:37AM ET
www.investing.com/analysis/new-year-old-gold-the-devil-is-in-the-patterns-200613543
New Year, Old Gold? The Devil Is In The Patterns
By Sunshine Profits (Przemyslaw Radomski, CFA)   |  Jan 04, 2022 03:37AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Changes are expected with the advent of a new year, but the precious metals seem to have missed the moment of transition. When will they wake up?

The year 2021 is over, 2022 has finally arrived. However, why does the current price action look “sooo last year”? Because the patterns appear to be repeating and the clearest similarity is present in the key precious metal—gold itself.

Gold Daily Chart
Gold Daily Chart

Gold prices moved higher in late December, and it happened on low volume. The rally caused the stochastic indicator to move above 80 and the RSI above 50. That’s exactly what happened in both: late 2021 and late 2020.

What does it mean? Well, it means that we shouldn’t trust this rally, as it could end abruptly, just like the one that we saw a year ago.

Besides, gold corrected 61.8% of the preceding decline (so it moved to its most classic Fibonacci retracement), which means that, technically, what we saw in the past two weeks was just a correction, not the beginning of a new rally.

Moving back to the similarity to what happened last year, let’s take a look at the mining stocks' performance.

GDX Daily Chart
GDX Daily Chart

The price moves were more volatile last year, which is why it’s useful to look at the analogies from the indicators’ point of view. After all, indicators exist to make situations more comparable to each other and, thus, to be able to play the history-rhymes card more often.

The stochastic indicator is above 80, and the RSI is above 70. I marked the moves in the RSI with purple ellipses – they look alike.

Since declines followed soon in January 2021, it seems that we’re going to see something similar also this year.

Of course, the analogy to last January is not the most important one. What happened in 2013, 2008, and 2000 is much more important. In particular, the link between now and 2008 is interesting because of what’s happening in the stochastic indicator in the long-term HUI Index chart.

HUI Weekly Chart
HUI Weekly Chart

The moves in the indicator are similar, and I marked the specific tops with red and black arrows. In the current situation, we saw yet another small move up, but that’s most likely because the price moves are now less volatile. The areas marked with red ellipses remain similar and show back-and-forth movement before the big decline.

We are now in this back-and-forth trading movement period. The implications are not bullish, but bearish.

Speaking of back-and-forth movement, let’s take a look at what’s been taking place in the USD Index recently.

DXF Chart
DXF Chart

The USDX has been consolidating after rallying sharply in November 2021. This is quite normal, and we saw something similar after previous short-term rallies during the current medium-term rally.

By the way, do you remember when I told you how the USD Index was likely to rally in 2021, when everyone and their brother was bearish on it last year?

The July-September 2021 consolidation, as well as the smaller October consolidation, were also normal parts of the bigger upswing. However, why would I say that this is a consolidation and not a double top?

Because the consolidation takes place after the USD Index breaks clearly above the previous important lows. The March 2020 low and the June 2020 low can be examples. Consolidation has been taking place above the latter. In fact, it was even tested in late November, and it held. The recent move lower is simply another test—just like what we saw in June 2020.

Since consolidation has been taking place for some time now, it’s likely that the next move higher will be quite visible once again.

This means that the previous target of about 97.5 might have been too conservative. Instead, it seems more likely that the USD Index would rally to its previous resistance area close to its April and May 2020 highs. That’s approximately the 100-101 area.

Of course, such a rally in the USD Index would be bearish for precious metals prices.

Let’s take a look at the silver price outlook.

Silver Daily Chart
Silver Daily Chart

The white metal is not as strong as it was in late 2020 and early 2021, but it seems to be repeating a different pattern. Namely, after the late-Feb. and early-Mar. 2020 slide (that took silver to its previous lows), silver corrected about half of its previous decline. The same thing happened recently.

Back then, silver topped close to its 50-day moving average, and that’s where the white metal moved recently as well.

Just because this pattern is similar price-wise, it doesn’t mean that it’s identical time-wise, and thus that silver is likely to drop as quickly as it did in 2020. Right now, the price moves are not as volatile, and the declines are unlikely to be AS volatile as they were in 2020—at least not before the final part of the decline.

It seems that what took days in 2020, now takes weeks. This means that we might see a decline that’s so huge that it takes weeks or even months to complete, not just several days.

New Year, Old Gold? The Devil Is In The Patterns
 

Related Articles

New Year, Old Gold? The Devil Is In The Patterns

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (4)
Erikas Ivan
Erikas Ivan Jan 06, 2022 5:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
It's always in the patterns, too bad few notice and run off with quick conclusion. Excellent prediction as always!
Mr Doodl
Mr Doodl Jan 04, 2022 5:14PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
That's one excellent analysis. Yeah I remember, one year ago some guys here were bearish on USD and laughing abour your prediction..
Dwain Hobbs
Dwain Hobbs Jan 04, 2022 9:39AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You say gold / silver down , they immediately shoot up , and thats for the zillionth time ! What a loser
Bayo Adekoya
Bayo Adekoya Jan 04, 2022 7:22AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
🙌🙌🙌
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email