Gold: First Steps Down In The Short-Term

Gold rallying on low volume yesterday was a clear bearish sign; the yellow metal dropped about $15 in today’s pre-market trading. What will happen next?

Gold, Bars, Wealth, Finance, Gold Bars, Deposit

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Yesterday’s (Jun. 2) and today’s sessions were quite rich in signals for gold, silver, and mining stocks, but only if one knows where to watch.

Gold: Short-Term Moves

Gold closed ~$5 higher yesterday, and this move took place on a relatively low volume. In fact, gold hasn’t rallied on volume this low since Apr. 26. This is a bearish sign for the short term, and indeed after the Apr. 26 session, gold moved lower in the following days.

And, right on cue, gold was about $15 down in today’s pre-market trading. While this decline might seem surprising to some, it’s actually a perfectly natural thing for gold to do right now.

The low-volume daily rally was only a confirmation, as we knew that Tuesday’s daily reversal was critical all along – based on the triangle-vertex-based reversal we recently saw. Combination of this with highly overbought RSI, a sell signal from the stochastic indicator, and, most importantly, the analogies to how the situation in gold developed in 2008 and 2012, provides us with an extremely bearish outlook for gold.

Many other factors are pointing to these similarities, and two of them are the size of the correction relative to the preceding decline and to the previous rally. In 2012 and 2008, gold corrected to approximately the 61.8% Fibonacci retracement level. Gold was very close to this level this year, and since the history tends to rhyme more than it tends to repeat itself to the letter, it seems that the top might already be in.

In both years, 2008 and 2012, there were three tops. Furthermore, the rallies that took gold to the second and third top were similar. In 2008, the rally preceding the third top was bigger than the rally preceding the second top. In 2012, they were more or less equal. I marked those rallies with blue lines in the above chart – the current situation is very much in between the above-mentioned situations. Also, the current rally is bigger than the one that ended in early January 2021 but not significantly so.

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Disclaimer: All essays, research and information found on the Website represent the analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong ...

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