Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

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

Published 01/04/2022, 03:37 AM
Updated 05/14/2017, 06:45 AM

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 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

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

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

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

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.

Latest comments

It's always in the patterns, too bad few notice and run off with quick conclusion. Excellent prediction as always!
That's one excellent analysis. Yeah I remember, one year ago some guys here were bearish on USD and laughing abour your prediction..
You say gold / silver down , they immediately shoot up , and thats for the zillionth time ! What a loser
🙌🙌🙌
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.