The Prospects of Gold's Next Upswing / Commodities / Gold & Silver 2019

TheUSD Index rallied on Friday, and gold responded with an intraday decline –that’s normal. What’s not necessarily normal is the size of the daily change ingold compared to the size of USD’s rally.

USDIndex Bounces Higher

Namely, goldfutures ended Friday’s session exactly where they had closed on Thursday. There was nodaily change in gold, even though it – theoretically – should have declinedgiven USD’s upswing. What does it mean? Gold’s resilience means that gold hasprobably not finished its short-term upswing yet.

Thegeneral rule for any market is that if it doesn’t move in the way it “should”move given what’s going on in the world, it means that – for whatever reason –it’s not the direction in which the market is going to move next. This tradingtechnique doesn’t specify what is the reason for a given market’s strength. The point isto detect and acknowledge this strength, and then to combine this informationwith other trading signals.

Oneof the biggest benefits of this approach is its widespread application. Knowingwhat is likely to move a given market and what kind of reaction would benormal, means that it can be applied – regardless of what the market is. Italso applies to various terms, if one takes into consideration the likely timein which the effect of a given development “should” be in place. For instance,in case of long-term investment, one should pay attention to how the marketreacts to the factors that matter in this time horizon, for instancedemographics and shifts in supply & demand picture. In case of daytrading,it’s a matter of checking if a given individual piece of news (or price actionfrom a key influencing market) causes a price move that seems natural. Thebigger the divergence from what would be viewed as normal, the stronger thebullish or bearish signal becomes.

Movingback to the USD-gold picture, we previously wrote that the USD Index is quitelikely to consolidate before rallying strongly and it seems that this consolidationis still taking place. The USDX didn’t break to new November highs and Friday’srally is in tune with how the U.S. currency performed in case ofprevious consolidations that we marked in green.

Backand forth movement was common, and sometimes it took form of a day-to-dayswings, and sometimes (such as in July and October), it meant two bottoms.There are no indications that would make Friday’s upswing look any differentthan what we saw in October and July and thus it seems that we could easily seeyet another downswing (perhaps to the recent lows) before the rally reallypicks up.

Andwhat would gold be likely to do in such an environment? It would likely rallymore visibly than it rallied recently – similarly to how it performed in thefinal parts of previous USDX consolidations. Despite today’s few-dollarpre-market downswing, it seems that the top is not yet in and that gold willmove higher shortly.

Butwhat about the short-term, what else can we say about our long position opened rightafter the November 12 reversal? Apart from outlining thetake-profit targets, the full version of this analysis dives into the lessonsfrom the short-term precious metals’ moves. It’s an invaluable tool in planningwhen and where to profitably switch market sides – similar to what we havesuccessfully done with the preceding short position. Please note that you canstill subscribe to these Alerts at very promotional terms – it takes just $9 toread the details right away, and then receive follow-ups for the next threeweeks. Profitalong with us.

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Arkadiusz Sieron
Sunshine Profits‘ MarketOverview Editor

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