Photo by Dmitry Demidko on Unsplash

We have now seen the breakout in the USD/JPY pair, and how gold has – in a completely unsurprising way – declined. And that is a game-changer, even if many people fail to view it as such.

This time, the trigger came from the inflation numbers that were above the expected levels, and the market now is pricing the scenarios in which the Fed doesn’t cut rates as quickly as previously expected. In consequence, the US dollar’s value increased while gold decreased. The S&P 500 Index futures declined as well.

The technical set-up was in place for days, and it didn’t really matter what kind of event or statistic triggered the move – it seems that the CPI did the trick, but in reality, the reason for the strength in the US dollar and the declines in gold and stocks were previously known, based on multiple technical indications. At least those who followed my analyses were prepared.

We took profits from the recent long position in gold when it rallied to $2,342 (but gold then moved higher before the end of the day, so the odds are likely that readers took profits at even higher gold prices). Two days ago, I wrote the following:

"If I had to consider a trading position in gold and I was not able to short junior miners, I would be opening a short position in it -- if gold moved above $2,370."

That’s what just happened, so if one wants to open a short position in gold, I think it’s now justified.

The price of gold reversed its course yesterday in a classic way (with a shooting star candlestick). However, since we saw those reversals a few times recently and they didn’t result in declines, I didn’t focus on yesterday’s pattern -- until I saw a change earlier today.

Today is the first day since March 25 wherein gold hasn’t made a new intraday high. And given what’s happening in the currency sector, it might not be able to make that high at all. Perhaps it will be able to move to new highs only after many weeks (or months) of declines. We’ll see about that when gold approaches its previous highs.

For now, it’s quite clear that gold has indeed topped in the upper part of my target area (it moved a few dollars above it, but not much more than that) and that the huge downswing has already begun. Of course, since it’s just started, it’s not that big yet. Which means that the trading opportunity is still here.

Let’s take a closer look at the key technical event of today’s session.

Ladies and gentlemen, we have a breakout.

In my previous analyses, I wrote that it’s quite likely that the rally in gold would continue while the USD/JPY currency pair continues to consolidate, and then I expected gold to start to decline once the USD/JPY pair breaks to new highs. That’s exactly what just happened. The USD/JPY rate just rallied sharply above its 2022 and 2023 highs, and gold turned south.

So far, the slide in gold has been relatively small, just as the size of the rally in the USD/JPY pair is, but breakouts are important for a reason – this is just the first step of another big climb in the currency rate, suggesting that the decline in gold has only begun.

(Click on image to enlarge)

The USD Index is soaring as well, but it is the USD/JPY pair's breakout that makes this rally so special.

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