The gold and silver markets reversed course in a major way, contrary to expectations given positive economic news. Both the GDX and GDXJ mining ETFs closed lower, indicating sell signals. This reversal, accompanied by rising US dollar strength, suggests gold wants to move lower in the short term rather than higher. Gold remains in a choppy range, forming an ascending wedge, and needs a daily close above $1834 to confirm a breakout of its neutral outlook.
2. Points To Be Covered Today:
• Gold Stocks Once Again Underperformed Gold
• Gold- Continuous Contract
• Gold Wants To Move Lower, Not Higher
• Gold’s Relative Performance
• The Gold Miners
• GDX & GDXJ
• Gold Vs 10yr & USD
• Gold Price & Chart
3. Gold Stocks Once Again Underperformed Gold
• Despite spiking at first, the miners’ hike was quickly invalidated. And
what an invalidation it was! The GDX and GDXJ ended yesterday’s
session lower.
• Now, that’s what a major short-term reversal looks like!
• If there was one sentence to summarize yesterday’s session, it
would be the above.
• Not only did gold, silver, and mining stocks – all – reverse in a
profound manner but also we saw multiple signs which further
confirmed the critical nature of this price performance.
• Namely, the USD Index bounced off its 38.2% Fibonacci retracement
once again, and gold stocks once again underperformed gold.
4. ADP Nonfarm Employment Change
• And speaking of underperformance, the most profound thing was
that all the above happened despite a piece of news that could have
(should have?) made gold rally.
• The ADP Nonfarm Employment Change was surprisingly negative
(only 330K vs. 695K expected), which indicated that the upcoming
(to
• be released tomorrow) Nonfarm Payrolls will also be negative. This
makes investors think that the Fed might be more dovish, or be just
as dovish, but for longer.
• In other words, it makes tapering less likely. Consequently, it was
something bullish for gold and gold rallied, but only for a few hours.
• It then took less than an hour for the entire intraday rally to be
erased.
6. Gold Wants To Move Lower, Not Higher
• What seemed like a possible game-changer turned out to be a
clear sell signal.
• The reversal was clear, and the accompanying volume was
much higher than what we saw in the past few days.
• Consequently, it should be treated as an important move.
• Why would that happen? You already know the answer.
• Because gold wants to move lower, not higher! More precisely,
because gold is repeating its past performance, which implies
that a bigger move lower, not higher is next.
7. Gold’s Relative Performance
• In yesterday’s analysis, I replied to a question about gold’s
performance compared to what’s going on in the treasury yields
and in the USD Index, and my explanation of gold’s relative
performance (or lack of thereof) remains up-to-date.
• We can also see that gold managed to ignore a piece of news
that was actually bullish.
• Gold’s reversal despite positive news is very bearish on its own.
The fact that it was accompanied by multiple bearish
confirmations makes it even more bearish.
10. GDX & GDXJ
• Despite the early move higher in the miners, their climb
was invalidated.
• Both seniors (GDX) and juniors (GDXJ) ended
yesterday’s session lower.
• This means that we saw sell signals from both ETFs
based on their reversals, as well as one general sell
signal based on the miners’ underperformance of gold
(which ended yesterday’s session slightly higher).
11. GDX & GDXJ - I
• Please note that both mining stock ETFs’ RSI indicators are at
the levels that triggered short-term reversals in the past.
• In particular, please note that the RSI based on the GDXJ
formed specific double tops before junior miners started their
short-term declines (late February and March 2021).
• Based on yesterday’s reversal, we saw exactly the same thing
once again. The implications are bearish.
• And while the precious metals sector seems to have topped, the
USD Index seems to have found its bottom at its 38.2%
Fibonacci retracement.
13. Small Rally In Gold Along With Increasing
Correlation Coefficient
14. The USDX Ended The Day Slightly Higher
• After another move lower on an intraday basis, the USDX
ended the day slightly higher.
• It seems that the short-term bottom might already be in (I’m not
ruling out a move to the 50% retracement though) and that the
next attempt to break above the blue declining resistance line
will be successful.
• That resistance line is particularly important, as it’s the neck
level of the broad inverse head-and-shoulders pattern with the
upside target close to 98.
• Naturally, such a move would be likely to have devastating
consequences for the precious metals sector.
15. Gold Technical Outlook
• Gold continues to chop around, and while doing so it is forming an ascending
wedge.
• Yesterday at one point gold looked poised to break to its best levels since
June, but fell sharply to close near the low-end of its daily range.
• This brought into play the lower side of the developing ascending wedge, and
also highlighted why it is important to avoid getting chopped up by waiting for
a confirming breakout versus predicting.
• As long as the lower line holds then so too does a neutral outlook.
16. Gold Technical Outlook - I
• To flip the trading bias firmly into bullish territory we will need to see a daily close
above 1834.
• A clean breakout is seen as having gold running towards the August 2020 trend-
line, currently up around the vicinity of 1870/75.
• On the flip-side, should gold decline firmly below 1805 and the rising trend-line, then
gold will be at risk of once again visiting the May 2019 trend-line.
• For the immediate future we are in 'wait-and-see' mode. Keep in mind it's August
and trading may lack any real conviction in the absence of a strong catalyst, so
being patient could be the name of the game for now.
