Gold At Support: The Upcoming Move

Gold and gold stocks declined yesterday, but silver hesitated. Does this, plus the fact that gold is up so far in today's pre-market trading indicate a short-term bottom? Or is the picture even on the verge of turning bullish?

Not at all. Let's take a look at the chart below for details.

Yesterday in the PMs

(Click on image to enlarge)

Gold close - and thus broke - below the $1,500 level yesterday. The breakdown was small - less than $1, so the move is definitely not confirmed. At the same time, gold moved to the rising support line but failed to close below it. This support is likely to trigger a rebound and that's what we're seeing in today's trading. So far gold is up by about $7 and we don't expect the rally to be much bigger than that. Gold's seasonals don't point to strength at this time and there are multiple other factors that instead of point to the decline's continuation.

For instance, gold miners just confirmed the breakdown below their rising support line. They also managed to close yesterday's session below July highs. This is bearish on its own and also through the relationship with gold. Gold miners' weakness relative to gold tends to herald weakness in the entire precious metals sector.

Does silver's pause indicate any strength here? No. It declined sharply, so a daily breather is very natural, and it doesn't imply anything.

(Click on image to enlarge)

Taking a bigger perspective, we see how gold declined after two big-volume weekly reversals. Gold declined shortly after the U.S. Labor Day - just like we expected it to, and just like it was the case in 2011 and in most years between 2011 and now.

The weekly RSI is still above 70 suggesting that even the very initial part of the decline is not yet over. This is another reason to think that the current bounce in gold is going to be short-lived.

The USD Index, Correlation Matrix and Gold

(Click on image to enlarge)

Meanwhile, the USD Index hasn't done much yesterday, and it was the second daily close below the rising support line. This means that the breakdown below it might be confirmed and USD could decline some more before rallying again.

However, since gold hasn't moved in tune with the USD Index recently - gold declined on its own - a small move lower in the USDX might not trigger any important upswings in gold. Let's take a look at our Correlation Matrix for details.

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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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