The Many Aligning Signals in Gold / Commodities / Gold & Silver 2019

Preciousmetals moved strongly on Friday, and did so on significant volume. Thereversals we have seen on Thursday got resolved with a heavy thud. Let’s diveinto the many charts and perspectives and explore how well they support theupcoming move across the sector.

Let’sstart this week with a bigger update on multiple gold charts. There are so manyreasons due to which gold is likely to decline in the following months - we’llstart with last week’s closing day analysis.

Gold,silver, and mining stocks declined, and the way in which they did, was veryinformative. Gold closed both the day and the week below the $1,500 level andthe volume increased as gold declined. In fact, Friday’s volume was the highestone that we saw so far this month.

Andgold stocks’ strength that we saw on Thursday? Gone and invalidated. Friday’sdecline in the HUI Index erased almost the entire October upswing. Neither insilver nor in gold have we seen the same kind of weakness. The miners’underperformance is huge and it serves as a major bearish confirmation.

Ofcourse, that’s just the tip of the signal iceberg.

Let’sconsider what gold did in the previous cases when it topped while forming a fewlower tops.

TheMessage of Gold’s Lower Highs

Thesimilar cases are characterized by the declining green lines and the thing thatwe would like you to focus on is the price of gold compared to the green linesand the 50-day movingaverage.The latter can be useful for many things, and in this case it’s helpful indetermining whether gold declined significantly enough for the move to be thestart of a bigger downswing.

Therewas practically only one case when gold moved above one of its previous highsand it was in 2018. Back then, gold moved to a new high before starting thedecline. But where did gold decline before this move? Only slightly below the50-day moving average and the MA was far from the declining green resistanceline.

In2016 and earlier in 2019 when the declining resistance line moved to the50-day moving average, and gold declined below the latter, there was no newhigh and gold’s decline continued. In early 2019, it continued only for sometime, but in 2016, it was followed by a major and sharp slide. The latterhappened in October, by the way. All in all, it seems more likely than not thatthe counter-trend upswing is already over. And if it isn’t, then it’s verylikely that gold won’t rally to new highs before declining significantly.

Wehad written that gold has likely topped in August as it moved up on huge volume. It was hard tobelieve, due to the same thing that caused the volume to be high in the firstplace – the extraordinary, emotional bullishness. The same thing accompaniedthe 2011 high and the 2018 high. Gold declined in September, but it’s unlikelythat the decline is over. Both above-mentioned highs were followed by $200+declines in gold and it doesn’t seem that this time is any different.

Tobe clear, it is different, but not in a way that would prevent gold fromdeclining at least $200 from the recent high.

Themove to which gold’s top and the current decline are particularly similar arethe 1996 top and the subsequent slide to the final lows.

Gold’sAnalogies

We wrote about it inmid-August, but it’s worth bringing up the most interesting chart from thatanalysis:

Theshape of the decline and the subsequent upswing is very similar to what we sawin previous years. However, that’s not even the most important detail thatmakes the decline so likely. It’s the USD Index and gold’s link to it.

The2014-2015 rally caused the USD Index to break above the decliningvery-long-term resistance line, which was verified as support threetimes. This is a textbook example of a breakout and we can't stressenough how important it is.

Themost notable verification was the final one that we saw in 2018. Since the 2018bottom, the USD Index is moving higher and the consolidation that it's been infor about a year now is just a pause after the very initial part of the likelymassive rally that's coming.

Ifeven the Fed and the U.S. President can't make the USD Index decline for long,just imagine how powerful the bulls really are here. The rally is likely to behuge and the short-term (here: several-month long) consolidation may already beover.

Thereare two cases on the above chart when the USD Index was just starting itsmassive rallies: in the early 1980s and in 1995. What happened in gold at thattime?

Thesewere the starting points of gold's most important declines of the past decades.The second example is much more in tune with the current situation as that'swhen gold was after years of prolonged consolidation. The early 1980sbetter compare to what happened after the 2011 top.

Pleasenote that just as what we see right now, gold initially showed some strength -in February 1996 - by rallying a bit above the previous highs. The USD Indexbottomed in April 1995, so there was almost a yearly delay in gold's reaction.But in the end, the USD - gold relationship worked as expected anyway.

TheUSD's most recent long-term bottom formed in February 2018 and gold [topped inAugust]. This time, it's a bit more than a year of delay, but it's unreasonableto expect just one situation to be repeated to the letter given differenteconomic and geopolitical environments. The situations are not likely to beidentical, but they are likely to be similar - and they are.

Whathappened after the February 1995 top? Gold declined and kept on declining untilreaching the final bottom. Only after this bottom was reached, a new powerfulbull market started. 

...And that's most likely what people were saying in early 1995, while they werebuying at the top.

It'seasy to get carried away by momentum and emotions that it generates. We're herefor you to analyze the market as objectively and with as much cold logic aspossible. And the key points in gold's supposedly bullish story simplydon't add up.

Goldtopped on extreme volume in August, just as it did in early 1996. The view fromother currencies apart from the U.S. dollar confirms how bearish the outlookreally is for the following months. Let’s see the summary for full details.

Summary

Summingup, it seems that the corrective upswing in gold is over or almost over andthat the big decline in gold is already underway (and that it had started inAugust as we had written previously). The invalidation of breakouts above the2011 high in case of gold priced in the euro and the British pound confirm howbearish the outlook really is for the following months. Gold is likely startingto decline hundreds of dollars. If it rallies a few or even $20 dollars rightnow, it doesn’t matter much given the above. The profits from the shortposition in gold, silver and mining stocks are likely to be legendary, but thedifficult part is not to miss the decline. That’s why we were so quick to getback to the short position in Friday. It was much better to do so than to riskmissing out of this epic move.

Today's article is asmall sample of what our subscribers enjoy on a daily basis. They know aboutboth the market changes and our trading position changes exactly when theyhappen. Apart from the above, we've also shared with them the detailed analysisof the miners and the USD Index outlook. Check more of our free articles on our website, including this one – justdrop by and have a look. Weencourage you to sign up for our daily newsletter, too - it's free and if youdon't like it, you can unsubscribe with just 2 clicks. You'll also get 7 daysof free access to our premium daily Gold & Silver Trading Alerts to get ataste of all our care. Signup for the free newsletter today!

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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