Invalidations Across the Market Have Major Implications for Gold Price / Commodities / Gold and Silver 2022
The invalidations of breakouts andbreakdowns are strong signals in the opposite direction, and we just saw themthroughout the market – also in gold.
The gold price has recently invalidated its small breakout above the 38.2% Fibonacciretracement level, which is a strong bearish sign. If it was just gold where wesaw this kind of performance, we could say it was by chance.
However, since we saw it almosteverywhere (at least in almost every market that really counts for preciousmetals investors and traders), it’s something that shouldn’t be overlooked.
Especially since this invalidationcoincided with a sell signal from the RSI indicator, which had just droppedbelow the 70 level. I used red arrows to mark previous cases where we sawsomething similar, and — you guessed it — declines followed in the majority ofthose cases.
Silver is the odd guy, because it didn’tinvalidate the breakout above the 38.2% retracement based on the 2022 decline.Instead, it invalidated its tiny breakout above the 61.8% retracement.
Fair enough, since silver is known tooutperform gold just before bigger declines. The size of the correction seemsto confirm this trading technique.
In today’s pre-market trading (chartcourtesy of https://www.silverpriceforecast.com),silver was up slightly more than gold, compared to the size of yesterday’sintraday decline.
This is a subtle indication that silver’svery short-term outperformance remains intact, and it continues to have bearishimplications for the short term.
Stocks Invalidated Their Breakout, Too
As I wrote earlier, it’s not just theprecious metals market that invalidated its recent breakouts – we saw somethingvery similar in theS&P 500 Index.
The broad market moved lower this week,and there are two good reasons to think that this time, the small move lower isjust the beginning of a much bigger move to the downside.
One of the reasons is that this movelower came right after the triangle-vertex-based turning point. The decliningblack and red lines (both dashed) intersect at more or less the very recenttop. As their name says, those turning points mark… Well, turning points. Andsince the most recent short-term move was to the upside, it currently hasbearish implications.
The second reason is that stocks nowbroke below their rising support line (marked with a solid black line), andthat’s not what happened during the two previous small moves lower.
The analogy in the price-volume link(marked with red rectangles) also points to much lower prices in the stockmarket.
WhatAbout the USDX?
Why is this important for gold and silverinvestors and traders? Because the last two big moves took place more or lessin line with each other – in stocks and in precious metals (and miners). Theslide in stocks could also trigger something similar in the case of commodities like crudeoil. The same thing is likely to happen again this time, especiallygiven what’s happening in the USD Index.
The USDX just invalidated a smallbreakout below its previous 2022 lows and its 38.2% Fibonacci retracementlevel. And it did so while being oversold from RSI’s point of view.
In fact, looking at the RSI, the currentsituation is very similar to what we saw in early June 2021. And you know whathappened to gold shortly thereafter? It plunged.
So all in all, the outlook for theprecious metals market is currently very bearish, not just from a medium-termpoint of view (which is mostly based on factors that I didn’t cover above), butalso from a short-term point of view. Given the situation in both preciousmetals, and the stock market, it seems that the junior mining stocks are poisedto decline the most.
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Thank you.
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Toolsfor Effective Gold & Silver Investments - SunshineProfits.com
Tools für EffektivesGold- und Silber-Investment - SunshineProfits.DE
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