Gold & Silver: Just a little decline in stocks was needed

For the precious metals market to move lower once again. 

The S&P 500 is down by 0.86% so far today, and the Dow is down by 0.56%. Not significant, but the entire precious metals sector moved lower much more visibly. 

USDX surges past key resistance levels

Yes, the move higher in the USD Index helped as well, but the fact that silver and miners declined much more than gold perfectly fits the narrative that I described yesterday – namely, that stocks’ decline is likely to impact those two markets more than gold.

Gold is down by 2.4% today. Silver is down by 4.7%. The GDXJ is down by over 6%.

At the same time, the USD Index is higher, and today’s rally is more important than it may seem at first sight.

It’s a breakout.

The USDX moved above the short-term declining resistance line, which is a bullish sign.

This line, along with the rising support line based on the very recent lows, create a vertex that is likely to mark some kind of turnaround. Either a local top or a quick decline to the previously broken line that would – most likely – verify the breakout.

This means that PMs and miners could decline in the very near term and then move higher in a rather insignificant way – perhaps another re-test of the February lows that would then be followed by a decline to fresh short-term lows. 

Gold in euro reaches unprecedented extremes

Before wrapping it up – due to lack of new developments or ones that would go against my previous thesis – I’d like to show you the charts of gold and silver from the European point of view – in terms of the euro.

Gold priced in the euro is most overbought in the entire history of this currency, at least based on the RSI indicator. The move above 70 in this indicator was spectacular, but the analogies to the previous cases point to a good chance of seeing a medium-term decline or consolidation.

The chart featuring silver in terms of the euro is clearer – and more bearish.

It’s clearer because we’ve had more similar instances where RSI moved above 70 in a similar, sharp way. In all previous cases – in the past 30 years – those were major, medium-term tops.

The current fundamental situation in silver is unique, however, given the odds of seeing big declines on the stock market AND given this sign, it seems that the price of the white precious metal will need to cool off before it soars again.