Gold just closed the month and quarter and its performance on the final day of both was very encouraging for the bulls. What’s going on and what changed?

 

Let’s start with the big picture

Chart

Gold just moved to the November 2011 high and in today’s pre-market trading it even moved above it. The volume on which gold moved up last month was relatively small, which doesn’t support the bullish case, but a confirmed breakout above the November 2011 high would be an important technical development, nonetheless.

The key word here is “confirmed”. The November 2011 high was $1,804.40, and at the moment of writing these words, gold futures are trading at $1,805.15 – that’s less than $1 above the above-mentioned high.

The way in which gold moved between 2012 and 2020 created a near-perfect cup from the cup-and-handle formation. Generally, the bigger the base, the stronger the move, and this time the base is huge. Still, the “handle” of the pattern is still missing, and it could take form of a volatile plunge. This would be in tune with how gold reacted to the first wave of coronavirus.

The breakout above the November 2011 high is far from being confirmed, and in our view it’s unlikely to be confirmed. Why?

There are multiple reasons for it, but the most precise and technical ones are gold’s likelihood to reverse its direction based on the triangle-vertex-based reversal and the long-term cyclical turning point.

Chart

The resistance line, above which gold tried to break and the rising support line based on the March and June lows cross more or less in the first days of July. The triangle-vertex-based reversals have pointed to many important tops and bottoms in the recent weeks and months.

We previously wrote that the above-mentioned reversal might correspond to a bottom in gold, but as of today, it’s clear that if any reversal is to take place, it’s going to be a top, not a bottom, as gold’s most recent short-term move has been up.

Let's keep in mind that gold's long-term turning point is here (the vertical gray line on the chart below), which further emphasizes the likelihood of seeing a major turnaround right now.

Chart

The reversals provided by the above-mentioned techniques are actually relatively close to each other given that this is already the first week of July, and that the second week of the month starts in just 2 trading days (the markets are closed in the U.S. this Friday).

 

The implications here is clear – don’t count on gold’s breakout’s success

Chart

The HUI Index is once again trying to break above the 2016 high. Although it might move higher today, we doubt that it would be able to hold its gains for a long time, in light of gold’s looming reversal. Instead, another invalidation of the reversal is likely.

 

And silver?

Silver

The white metal showed strength as well, rallying almost to the previous 2020 highs. As dramatic as it may sound, please note that silver just a few dollars above its 2015 low and over $30 below its 2011 high. Miners are disappointing too – it is only gold that is stealing the spotlight. And it’s doing so on relatively low volume, making its entire “strength” doubtful.

Silver broke above its declining green resistance line… Once again. This line is based on the 2011 high and the 2019 high. There were three previous attempts of the white metal to break above this line and they all failed. Is this time any different? We doubt that, especially given gold’s reversal indications.

And in particular, given the rising coronavirus cases that initially (!) triggered a precious metals sell-off in March. The sell-off started when people started really considering the economic implications of the pandemic and the lockdown, so this kind of thinking is likely to be back once the pandemic prevention mechanisms are going to be re-introduced on a bigger scale.

 

Summary

Summing up, gold is stealing the spotlight, trying to break above the $1,800 barrier and the November 2011 high, but it’s unlikely to be able to confirm this move. Gold did end the previous month and quarter at exceptionally high level, but the monthly volume was low and it was the only part of the precious metals market that showed this kind of strength. Silver is just a few dollars above its 2015 low and over $30 below its 2011 high, while miners are trying to get above their 2016 high – well below their 2011 high. Given the above and gold’s looming reversals, I think that a big decline is in the cards for the entire precious metals sector.

 


 

Want free follow-ups to the above article and details not available to 99%+ investors? Sign up to our free newsletter today!

 

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' employees and associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis


Latest Forex Analysis

Editors’ Picks

AUD/USD: Bears trying to sneak in below 0.6950 but bulls give a healthy fight

AUD/USD kick-starts the week with a gap-down, seesaws around 0.6930 afterward. A surge in the virus cases, hospitalizations in the US, escalating Sino-American tension question market sentiment. 

AUD/USD News

USD/JPY slightly offered in the open, eyes on coronavirus headlines

The yen has picked up a start of the week bid across the board, moving up against the US dollar by 5 pips to a low of 107.42 from high of 107.47, falling further away from the end of week 107.50s. 

USD/JPY News

What you need to know for the open: Summer lull or a COVID-19 tidal wave of panic-vol?

AUD/USD is the currency pair in focus for this week. Coronavirus developments vs economic recovery are on every trader's playbook. Key data for the week will kick in with US jobs updates, ISM Manufacturing and the RBA meeting. 

Read more

Gold: Buyers can ignore soft weekly open below $1,775

Gold prices offered a downside gap near $1,774 to kick-start with the week on a back foot. Pandemic fears, geopolitical tensions keep safe-haven buyers strong amid global policymakers’ fight against economic suppression.

Gold News

S&P 500: Futures struggle to refresh two-week top

S&P 500 Futures prints mild loss of 0.10% while declining to 3,126 during the initial hour of Tokyo session on Friday. In doing so, the risk barometer fails to extend the previous four-day winning streak.

Read more

Forex Majors

Cryptocurrencies

Signatures