Will The Guillotine Drop On Gold This Week?

Two things appear to be on the chopping block for this week or are close to being so. The first is the USDX’s corrective downswing, and the second being gold’s short-term rally.

And that can only mean that the precious metals are looking at negative headwinds for the medium-term. How low can the yellow metal go? It may be hard to believe, but is anything below $1500 even possible? 

In yesterday’s flagship Gold & Silver Trading Alert, I emphasized that the next short-term top in the precious metals market is likely to be formed this week, most likely on Wednesday or Thursday. The basis for this forecast was the triangle-vertex-based reversal in gold as well as USD’s correction that appears to be analogous to its 2018 correction that was followed by another powerful rally.

In short, the above expectation (and reasoning behind it) remains up-to-date. Let’s start today’s discussion with a look at the USD Index.

ChartDescription automatically generated

USD’s Corrective Downswing is Over

On Friday (Apr. 2), I wrote the following:

What we saw yesterday definitely qualifies as a small correction. In fact, even if it was doubled it would still be small. And – more importantly – it would be in perfect tune with what happened in 2018 during the big rally.

After rallying visibly above the:

  • 93 level
  • 200-day moving average
  • 61.8% Fibonacci retracement level based on the final part of the decline

the USD Index moved back below the 93 level. This happened in May 2018 and it happened last week.

Since both rallies are so similar, it’s nothing odd that we see a pullback in a similar situation.

Back in 2018, the pullback was small and quick. It ended without the USD Index reaching its 200-day moving average. The pullback ended when the USDX moved approximately to its previous high and slightly below the 61.8% Fibonacci retracement.

Applying this to the current situation (previous high at about 92.5, the 61.8% Fibonacci retracement at about 92.7, and the 200-day moving average at 92.66), it seems that the USD Index would be likely to find its bottom in the 92.3 – 92.7 area.

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Disclaimer: All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be ...

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Adam Reynolds 2 weeks ago Member's comment

Time to say bye bye to gold!