Gold’s Profound Breakdown. And Something Much More Important.

Gold finally broke below the triangle pattern and confirmed multiple medium-term bearish signals that we previously saw. Gold is the flagship metal of the precious metals sector, so the above is an important indication for the short term. However, the most important development for gold and silver investors happened somewhere else.

USD’s Breakout

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The USD Index broke above the declining short-term resistance line that we marked with purple. Even though the breakout is not yet confirmed, this changes the short-term outlook for the USDX to bullish. The USD has been weak on a short-term basis, despite bullish medium-term outlook and Friday’s breakout suggesting that the short-term trend has finally changed and that – perhaps – the medium-term rally has already resumed.

This, plus the likelihood that gold is now going to magnify USD’s bearish signals (i.e. USD’s rallies), has very bearish short term implications for gold, silver, and mining stocks.

The next triangle-vertex-based reversal is in early February (marked with vertical, dashed line), which is in tune with what we wrote on Friday about the likelihood of the possible reversal in early February.

Gold’s Dramatic Pause is Over

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We previously wrote the following about the situation in gold:

(…) Gold is moving back and forth within a triangular pattern and the fact that yesterday’s close was the second highest close of the year doesn’t change anything. The relatively low volume that accompanied the upswing (lowest daily volume of 2019) confirms it.

Gold received a lot of publicity and it was even Cramerized. And yet, the buying power appears to have almost dried up. Gold had a good reason to rally further, but it didn’t. If there are very few buyers left, who’s left to keep pushing the price higher?

Given positive news, gold was almost forced to rally and the fact that it was at its rising support level helped. But this rally was as weak as it gets. The volume was relatively low, there was no breakout and neither silver nor mining stocks confirm the daily upswing.

The above lack of strength – unsurprisingly – resulted in price declines. Gold declined and broke below the triangle pattern and below the rising red support line. And it did so with only small help from the USD Index.

The gold volume was big in relative terms (bigger than what accompanied two previous days’ action), but not in absolute terms. The former suggests that the move was rather not accidental, and the latter suggests that the full strength of the bears is yet to come. The implications of Friday’s action are very bearish.

Before moving to silver, let’s take a look at the confirmations that we just saw from the MACD and PMO indicators.

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They are both very useful for detecting major tops in gold. They were extremely effective in previous years. There were two cases when they didn’t indicate a huge decline. One of those cases was in 2016 and the second one was in late 2018. This is interesting because of two reasons:

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