Will Gold Chart New Lows As USD Rises?

As the silver craze subsides and the USD rises - partly due to a better-than-expected U.S. jobless report - gold and the precious metals will be testing deeper waters.

While silver stole the spotlight recently, I’ve been emphasizing the importance of what’s happening in the USD Index and gold. Developments in both markets had bearish implications for the precious metals market overall, and we didn’t have to wait long for the results.

Namely, gold moved lower once again in today’s pre-market trading and it’s currently testing its 2021 lows.

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Figure 1

In Tuesday's analysis, I wrote that the yellow metal’s breakdown below the rising red support line was not yet confirmed, but that the situation had already become more bearish. Gold closed below this line for the second day yesterday and given today’s decline, it seems that it’s going to close below it for the third consecutive day. This means that the breakdown is almost confirmed, and the implications are strongly bearish.

Now, given the proximity of the triangle-vertex-based reversal, I wouldn’t rule out a quick comeback and then another downturn within the next several days.

Theoretically, it’s possible that gold slides to $1,700 shortly and reverses there, but we wouldn’t bet the farm on this happening this or the next week. However, it is very likely to take place in February (more likely) or in March (less likely).

Why is this move likely to happen soon? Because of what happened in the USD Index.

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Figure 2

The U.S. currency just confirmed two important breakouts:

  1. Breakout above the neck level of the inverse head-and-shoulders pattern
  2. Breakout above the declining medium-term resistance line based on the March 2020 and November 2020 highs.

The above is important also due to another – even more critical – reason.

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Figure 3

Based on the remarkable similarity to early 2018 (also in bitcoin and dogecoin, and most likely also in stocks to some extent), the breakout above the declining resistance line (and the 50-day moving average) is likely to mark the start of a big, sharp upswing.

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