Hey Gold, Is Your Next Top In?

As the USD Index is testing its declining resistance line, the question now is whether gold’s corrective rally is running out of steam.

Very little changed yesterday (Feb. 10), and whatever changed served as a bearish confirmation for the short term. Let’s take a look at the charts for details.

Gold moved higher once again yesterday, but it reversed and declined before the closing bell. Does it mean that the next top is in or about to be in? That’s exactly what it means. Especially considering that yet another daily reversal in gold took place almost right at the triangle-vertex-based reversal and during USD’s breakout’s verification.

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Figure 1 - USD Index

I previously wrote that because assets don’t move in a straight line, it’s plausible that the USD Index retests its declining resistance line, while gold retests its rising support line. If this occurs, the USDX is likely to decline to the 90.6 range, while gold will receive a short-term boost. I emphasized that the outcome does not change their medium-term trends and the above confirmations signal that the USDX is heading north and gold is heading south.

The part that I put in bold is exactly what is being realized right now. The USDX is correcting after the breakout, likely verifying the previous resistance as support.

Unless the USDX breaks back below the declining medium-term support line in a meaningful way, the bullish implications for the following weeks will remain intact. At the moment of writing these words, the USD Index is practically right at the support line, which means that it’s quite likely to reverse shortly.

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Figure 2 - COMEX Gold Futures

Gold formed a reversal yesterday, but it ended the session slightly higher. That’s the second “shooting star” reversal in a row. It’s also been two days in a row when gold has shown that it no longer wishes to react to bullish signals from the USD Index. The corrective rally appears to be over.

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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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Monica Kingsley 3 weeks ago Contributor's comment

Well, I looked to see factual discussion on the precious metals and related markets, a clear presentation of ideas and arguing about their merits, justifications etc. This is unfortunately not happening - the readers instead of expanding their horizons in healthy professional discussion, are on the second consecutive article occasion treated to feelgood statements only.

This is TalkMarkets. Could we talk markets, actually?

Erikas Ivan 3 weeks ago Member's comment

Thank you, I'm very impressed with your detailed precious metal market analyses, Mr. Radomski. I am following everything you write here and on SunshineProfits.com closely, and I'm in the process of applying in my investments. Your future articles are much appreciated.

Przemyslaw Radomski, CFA 3 weeks ago Author's comment

Thank you, I'm very happy to hear that you enjoy my work.

Monica Kingsley 3 weeks ago Contributor's comment

Dollar breakout would mean we're entering a dollar bull market, which I don't view as a proposition fittingly describing the reality - the greenback will remain on the defensive this year, and we saw not a retest, but a local top. Technical features such as steeply sloping lines inevitably get broken sooner or later, out of pure inertia or a weak corrective movement (no lasting trend change by default) - and it's my opinion we're seeing the latter run its course here.

This has powerful implications for the precious metals, where the only question is whether we get a weak corrective move to the downside still (nothing like the fearmongering $1,700 I see circled here), or whether we can base in a narrow range, followed by another upleg (think spring). February isn't the strongest month for precious metals seasonally, true, but it isn't a disaster either. I've been covering metals extensively daily for the whole world to see, so people are thankfully familiar with the current true internal strength in miners and other ratios.

Suffice to say that despite gold moving to $1,830 as we speak, it's chart is still leaning bullish. Consolidation with strong bullish undertones and my well argued reasons why.