Gold, Miners: How Long Will Short-Term Rally Last?

  1. The triangle-vertex-based turning points have been working particularly well in the recent past – they marked the January and February tops.
  2. The corrective upswings during this medium-term decline (especially in mining stocks) often took about a week to complete – at least the easy part of the upswing took a week.

The USD Index has been rallying relentlessly – just like in 2018 – in the last couple of days, but a quick pullback would not be surprising. In fact, it seems that one is already underway.

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Figure 4 - USD Index (DX.F)

On March 8, the USD Index had closed above its lowest daily closing price of August 2020 (92.13), but yesterday, it closed back below this resistance. This means that we just saw an invalidation of the breakout – which is a bearish sign for the short term.

How low could the USD Index move during this pullback? Not particularly low, as the similarity to 2018 implies a rather unbroken rally. The February 2021 high of 91.6 seems to be a quite likely target, but we might see the USDX move a bit lower as well – perhaps to one of the classic Fibonacci retracements based on the recent upswing – the lowest of them (the 61.8% one) being at about 90.8.

This pullback might trigger a question about the validity of the analogy to the 2018 rally, which seems to have taken place without any interruptions.

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Figure 5

The analogy seems to remain intact when looking at it from the long-term point of view. Let’s keep in mind the recent decline was a bit sharper and it took less time to complete.

The 2017 – 2018 decline took 387 day (between the top and the first low) and then there were 82 days between the initial and the final low (21.19% of the decline).

This time, there were 269 days between the top and the first low. Adding 21.19% to this time, points to Feb. 12 as the "proportionately identical" bottom time target. The final bottom formed on Feb. 25 - just 9 trading days away from the analogy-based target. The analogy remains clearly intact.

“So, doesn’t it imply that there shouldn’t be any pullbacks until the USD Index rallies above 94?

No. And this becomes obvious once we zoom in.

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Figure 6

You see, it’s not true that there were no pullbacks during the 2018 rally. There were, but they were simply too small to be visible from the long-term point of view.

The first notable pullback took place in early May 2018, and it contributed to a corrective upswing in the precious metals market. To be precise, the USD Index declined after rallying for 56 trading days, but gold rallied earlier – 51 trading days after the USD Index’s final bottom. The USDX’s immediate-top formed 16 trading days after its final bottom, and gold’s bottom formed 10 trading days after the USD’s final bottom.

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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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Erikas Ivan 1 month ago Member's comment

Thank you for providing exact and valuable service through your emails, Mr. Radomski. Spot on!

Przemyslaw Radomski, CFA 1 month ago Author's comment

Thank you!

Mar1kle 1 month ago Member's comment

Long term (Greater than 2 years...weekly chart), we bottomed in 2016. Medium term (Greater than 1 year...daily chart) we bottomed in Mar 2020. Short term (Less than 6 months 4 hour chart), we have not bottomed. Since Jan we have hit up against a well defined downward channel (shown on Daily and Hourly charts...days 1/29, 2/10, and 2/24), and have failed. Today that top part of channel sits at around 1800. The bottom part of the channel has been violated to the downside. Until we clear the upper line of this corrective channel we cannot say we have a short term bottom. The real question is what is the short term bottom price target and when will we get there. Options expiration next week has been a bloodbath this year for Gold. Short squeezes on highly shorted stocks seems to have also quietly picked up again (GameStop at 265). Options week will be interesting. Will Gold shorts panic and attempt to push the market down to get out of their highly leveraged short positions? I would not be long next week. As to a (short term) bottom.. I vote 61% retracement (measured from the 2018 lows to Jan 2021 High) around 1536. I think a major chunk of this will come next week. Then up from there

Przemyslaw Radomski, CFA 1 month ago Author's comment

Interesting point, thanks. I think we define short-term moves as something different. To me, a short-term move would be a weekly rally, for example - and I think we're more or less in the middle of one.

Carl Schwartz 2 months ago Member's comment

I think we bottomed.

Przemyslaw Radomski, CFA 1 month ago Author's comment

I think so too, but then again, I view this move as a counter-trend rally that would be likely followed by another move lower perhaps as early as next week.