In yesterday’s article, we explained why the short-term outlook for the precious metals changed from bearish to neutral and we took profits from our short positions. It was not just the fact that the price targets were reached for gold and silver. The key to the change in the outlook was seeing the confirmations from gold’s performance relative to the USD Index and from the mining stocks’ performance compared to the one of gold. In today’s analysis, we’ll take a closer look at what happened and what it means going forward.
Let’s start with gold (charts courtesy of http://stockcharts.com).
Gold at Its Downside Target
Gold moved to the upper part of our target area and it did so one day before its cyclical turning point and with RSI below 30. That’s a bullish combination for the short-term.
Naturally, RSI below 30 is no guarantee of higher prices in the near term, just like it didn’t trigger them in the final months of 2016, but in light of the significance of the rising support line, it’s something worth keeping in mind.
The analogy to the final months of 2016 still suggests that lower gold prices are likely to continue, so the upcoming corrective upswing (if we really see one) should not be huge. If you’re new to our analyses and are not aware of the analogy to 2016, please compare the two areas that we marked with black rectangles. In 2016 and 2018, we saw several tops close to $1,350 and bottoms close to $1,300, which was followed by a breakdown and a move back to the previous lows and then a move to new lows. The similarity continues so far, which means that gold is likely to decline even further from here. This part of the analogy is represented by the dashed green line on the above chart.
Let’s move back to the rising medium-term support line.
Reaching it is a big deal, because it’s the biggest and most visible rising medium-term support line there is. Only the long-term, rising, red, dashed support line is more prominent, but a breakdown below it is more than confirmed, so it’s no longer a factor that could trigger any moves.
From the long-term point of view, it’s clear that this line was reached, even though on the previous short-term chart only the upper of the two rising lines was touched. The upper one is based on the closing prices, while the lower one is based on intraday lows. Does it matter much? Not really – it only indicates that gold might move a bit lower today. Today’s overnight low was about $1,254, so perhaps the bottom was already reached.
