In yesterday’s Gold Trading Alert, we commented on the breakout of gold above previous highs and described the completion of the reverse head and shoulders pattern as follows:
Q2: As you can see today, the future of gold has formed an inverted head and shoulder pattern with a 1700 neckline and a depth of around 250.
This implies that gold can go up to 1950.
A2: Yes, that implies that and that is probably why the gold has climbed so high after the previous highs were broken. However … We have very little confidence in this training. One thing is that the break above is not confirmed, and the other thing is that the recent rally was something that was very much in line with the analogy with 2008. There was some strength, gold has even reached new heights, but .. That’s about it. Neither silver nor miners have reached or are about to reach new heights – this is exactly what we saw in 2008, before the last fall in gold.
Let’s take a look at the breakthrough of gold to new heights in 2020.
Gold has indeed moved strongly above the previous peaks of 2020, but it has also fallen sharply. This could be considered a small withdrawal and a breakout check… But only if the price of gold rallies and closes higher for the next two trading days. This seems doubtful due to the above factors but also due to the short term situation of the USD index.
And what happened in the following hours? Did the gold move as we expected?
Gold fell (forming a huge reversal) and closed the day below the previous intraday highs of 2020, effectively canceling the break above them. Gold has always closed the session above previous highs in terms of daily closing prices, but intraday invalidation is already important. This is particularly important given that the USD index initially dropped yesterday. Gold did not use this move to rally – it only mitigated its intraday decline.
Since yesterday’s USD index decline already appears to have ended, its correction after bouncing off support from previous highs, it looks like pressure on gold will now be negative.
The 2008-2020 link remains intact, not only fundamentally, but also technically.
In Monday’s alert, we commented on the above graph as follows:
Silver has risen, but not above its recent peak, and miners have corrected about half of their last slowdown. It seems that the two periods of 2008 and 2020 (both marked in green) are indeed very similar.
Note: money could exceed its recent peak temporarily because the market could focus on industrial demand due to future infrastructure projects. It is unlikely to be more than a temporary development.
As you can see, there are triangular inversions based on the highs at the start of this week in all of the key parts of the precious metals sector: gold, silver and mining stocks. We also get the same indication based on the GLD ETF.
This means that – based on this trading technique – it is very likely that we will see some sort of inversion today or tomorrow. Based on the analogy with 2008, this is likely to be a local peak, even despite the rise in the USD index.
This is exactly what happened. GLD appears to have passed Monday, while gold futures and silver futures surpassed Tuesday. The miners surpassed Monday in terms of daily closing prices, but they surpassed yesterday in intraday terms.
Triangle and vertex inversions seem to have worked again – especially in the case of gold, and it seems that we are closing long positions in gold extremely close to the top and the same goes for the timing of the increase in short position in miners (after having temporarily limited it).
Please note that the summit is probably also based on the analogy with the development of the situation in 2008. The next slide is likely to be particularly volatile.
The last note on the link with 2008 is that at the time, gold had made more than one attempt to surpass previous highs, so even if it is not inevitable this time, we should not be surprised. if we see something like this. Still, given the size of the rally that immediately followed the false breakout to new heights in 2020, it looks like the rally is already over after all.
The stock market recovered yesterday … To a certain point. Then it reversed and finally created the inversion of the doji headstone, which is a major bearish indication in the short term.
The S&P 500 appears to have exceeded the Fibonacci retracement levels of 38.2% and 50%.
This is exactly where it peaked after the most volatile drop in 2008. The peak in mid-October 2008 was also formed on an intraday basis, making these cases even more similar.
In summary, it looks like the precious metals market is about to slide. However, the downward movement may not stay in place for a long time – we expect a big rebound in the next two weeks, like what we saw in 2008.
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