The First Crack In The Golden Dam

Interestingly, the 2012 rally ended on huge volume, which is exactly what we saw also on May 19 this year. Consequently, forecasting much higher silver or gold prices here doesn’t seem to be justified based on the historical analogies.

The thing I would like to emphasize here is that gold didn’t form the final top at the huge-volume reversal on Sep. 13, 2012. It moved back and forth for a while and moved a bit above that high-volume top, and only then the final top took place (in early October 2012). 

The same happened in September and in October 2008. Gold reversed on huge volume in mid-September, and it was approximately the end of the rally. The final top, however, formed after some back-and-forth trading and a move slightly above the previous high.

Consequently, the fact that gold moved a bit above its own high-volume reversal (May 19, 2021) is not an invalidation of the analogy, but rather its continuation.

There’s one more thing I would like to add, and it’s that back in 2012, gold corrected to approximately the 61.8% Fibonacci retracement level – furthermore, the same happened in 2008 as you can see in the below chart. Consequently, the fact that gold moved above its 50% Fibonacci retracement doesn’t break the analogy either. And even if gold moves to $1,940 or so, it will not break it. It’s not likely that it is going to move that high, as in both cases –in 2008 and 2012 – gold moved only somewhat above its high-volume reversal before forming the final top. So, as this year’s huge-volume reversal took place close to the 50% retracement and not the 61.8% retracement, it seems that we’ll likely see a temporary move above it, which will create the final top. And that’s exactly what we see happening so far this week.

The lower part of the above chart shows how the USD Index and the general stock market performed when gold ended its late-2012 rally and was starting its epic decline. In short, that was when the USD Index bottomed, and when the general stock market topped.

Also, please note that while it might seem bullish that gold managed to rally above its declining black resistance line recently (the one based on the 2020 top and the 2021 top), please note that the same happened in 2012 – I marked the analogous line with red. The breakout didn’t prevent gold from sliding. When the price reached the line, we saw a short-term bounce, but nothing more than that – the gold price fell through it in the following weeks.

Oh, and by the way, the Fed wants to convince the market that inflation is just transitory in order to prevent the 10-year yield from rising. Let’s ask ourselves now what the Fed would appreciate with respect to gold prices. Exactly, it would be awfully convenient for the price of gold to decline in order to prove the point of the transitory nature of inflation.

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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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