Gold and Silver Show the Way
2024.04.30 15:36
Both key precious metals moved decisively lower today, which is in perfect tune with their recent price patterns.
Current Market Observations
Consolidations, pauses, and breathers are the same thing (their length differs) and they serve one purpose – to cool down people’s emotions and prepare them for the next moves. When prices move far and fast, it “seems” and “feels” excessive and out of order. But when prices stay there for a long time, what seemed excessive, starts to feel normal. And from those levels (and from this approach / feeling) a new price move can emerge – one that would make prices excessive once again, and thus another break would be needed.
The sizes of price moves differ, and often bigger price moves require bigger corrections or longer consolidations (or both), but the overall mechanism is this. And in the current situation, what seemed excessive (gold’s decline and its breakdown below the rising support line) has already become “normal”. This means that another move lower can start.
And that’s exactly what appears to be taking place in today’s pre-market trading. Quoting my yesterday’s comments on the above chart:
Overall, the breather that started after breaking below the rising support line continues. The breather itself is a bearish phenomenon as it “legitimizes” the breakdown. It’s been more than three consecutive trading days below the line, so the declines are likely to be resumed shortly.
Perhaps the decline already resumed, even though it’s not apparent, and I’m writing this based on the fact that gold hasn’t made a new intraday high today, which used to be the case in the previous four trading days.
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Indeed, gold hasn’t made a new intraday high – neither yesterday nor today. Instead, gold moved decisively lower.
Silver Follows Suit
Accidental? Most likely not, because silver did the same thing.
After several days of back-and-forth movement, silver declined to its recent lows. This time, however, both markets are already after their respective breathers. Plus, gold is after a confirmed breakdown.
This means that the next big move lower has likely just started.
Mining stocks were quite strong yesterday (and recently) and we also saw strength in other markets that were weak previously – like .
Copper even moved to its 2011 high – a price level that always generated declines, either immediately or after a small attempt to move above it.
But it’s not resistance in copper that I want to emphasize here, but the relative performance of both markets that were previously (in the previous months) relatively weak.
This is very much in tune with what we saw in 2008 and 2022 before stocks – and other markets – plunged.
The above chart features world stocks and the orange rectangles show moments when we saw FAKE strength in miners. If you compare the above chart with the copper chart, you’ll see that these were times when copper was “strong” (before sliding) as well.
The real difference here is that this time – unlike in 2008 and 2022 – mining stocks (the XAU Index includes gold stocks and silver stocks) haven’t managed to rally as much, despite the big rally in gold.
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Yes – mining stocks ARE weak here. And as world stocks continue to decline after topping at their 2007 high, miners are likely to catch up with the decline, and the same goes for copper. This creates great trading opportunities for those that will be positioned to take advantage of those moves. Remember the 2008 slide and how you might have wished that you could go back in time and profit on this move instead of being hurt by it – this might be your chance.
I previously wrote the below as the most likely scenario going forward:
What’s the most likely scenario going forward? Gold price continues to rally to new highs, we close the long position cashing profits, and then gold and miners both slide and we end up cashing in profits from the short position in junior miners as well. In the meantime FCX falls, and we cash those profits too.
The first part is done – we closed the long positions, cashing profits. Now, gold, miners (and FCX) are likely to slide – either immediately, or shortly.
