Gold: Reversal Is The Name Of The Game

When the USDX declines, the PMs usually celebrate and rise as a result. However, this was not the case yesterday – and we can’t ignore it.

“Reversal” is the name of the game, at least when it comes to the precious metals market.

The USD Index declined profoundly once again yesterday (May 18), and gold, silver, and mining stocks ignored this move. They didn’t want to follow in its footsteps anymore.

As you can see, the USD Index reached its horizontal support provided by the previous important low. Low that was formed after a fake breakdown below the neck level of a supposedly bearish head-and-shoulders pattern. The USDX is not only at similar price levels; it’s also right after a supposedly bearish breakdown below. The reversal could be just around the corner, or we might have already seen it, given today’s (small, but still) pre-market move higher.

As I mentioned above, yesterday’s sizable decline in the USDX should have triggered substantial rallies in the PMs. What happened instead?

Reversals.

What Happened to Gold?

Gold reversed right at its triangle-vertex-based… well, reversal, and the combination of resistance lines.

The reversal in gold took place after gold moved very close to its mid-January highs and the 50% Fibonacci retracement based on the August 2020 – March 2021 decline.

The sizes of the current rally (taking the second March bottom as the starting point) and the rally that ended at the beginning of this year are practically identical at the moment.

Just as the rallies from early 2012 and late 2012 (marked with blue) were almost identical, the same could happen now.

The March 2021 low formed well below the previous low, but as far as other things are concerned, the current situation is similar to what happened in 2012.

The relatively broad bottom with higher lows is what preceded both final short-term rallies – the current one, and 2012 one. Their shape as well as the shape of the decline that preceded these broad bottoms is very similar. In both cases, the preceding decline had some back-and-forth trading in its middle, and the final rally picked up pace after breaking above the initial short-term high.

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