Gold Price Outlook: What Gold Did When The Shooting Resumed

In Friday’s Gold Trading Alert, I wrote: “The breakdown below the rising support line and then below $4,500 will likely be the final two nails in gold’s temporary coffin.”

Gold daily chart shows a breakdown below $4,500 after a rebound stalled near resistance.

Friday’s close hammered in the first, and yesterday I noted that the day’s close would decide the second.

It decided. Gold closed Monday at $4,481.50, below $4,500, and it trades near $4,426 as I write this, down again. Both nails are in, and the word temporary still means what it meant: gold remains in a long-term bull market, and the following months are still likely to repeat what we saw in late 2012 and 2013 before that bull market resumes.

Silver Answered In One Session

Yesterday, I wrote: “The immediate-term outperformance in silver is rarely true strength – it’s usually the sign that the market wants to move lower, not higher.”

Silver daily chart highlights the prior top near $120 and a bearish downside target around $48-$50.

Silver daily chart shows price testing converging trend lines and Fibonacci retracement levels after its rebound.

This morning, silver is falling at roughly twice gold’s pace. The outperformance resolved the way it usually does, within a single session, and silver’s breakout invalidation is now the thing to watch on a closing basis.

For now, silver still remains above (precisely: at) its declining resistance line. Once silver breaks back below it, we’re likely to see a powerful slide.

Additionally, please note the following:

–  Silver already broke below its rising support line, which is a bearish indication

–  On Friday, silver topped exactly at the intersection of two support/resistance lines. This technique proved to be very useful once again.

Here’s why the support is most likely to fail:

U.S. Dollar Index daily chart shows a confirmed breakout above declining resistance after the 50% retracement held. Source: StockCharts.com.

Yesterday was the third day in a row when the USD Index closed above its declining resistance line. This means that the breakout was confirmed. The USD Index is also moving higher today. All this means that the decline that we saw in August is – in all likelihood – over. For a more long-term overview, please go to today’s Letters to the Editor section.

The opposite is therefore most likely the case for the precious metals sector. This makes sense also from the fundamental point of view.

The War Restarted, And Gold Went Down

This is the part of today’s session that tells you the most.

The US and Iran exchanged strikes for the first time in roughly a month. American forces targeted Iranian rocket launchers on Larak Island after detecting preparations to deploy mines in the strait, Tehran responded with missile and drone attacks on US facilities in Jordan and the UAE, Iranian media reported a tanker struck two mines and a bulk carrier was seized near Bandar Abbas, and President Trump extended military threats to Kharg Island, Iran’s key oil export hub. Brent moved back above $90.

And gold is down more than a percent.

A month ago, headlines like these produced hundred-dollar rallies in gold within hours. Today the shooting resumed, oil spiked, and the metal that is supposed to feed on exactly this fell instead. When a market stops responding to its best-case news, the news is not the story. The channel is: oil up means inflation up, inflation up means the Fed stays hawkish, and a hawkish Fed with a confirmed dollar breakout outweighs any war premium. The safe-haven bid did not weaken. It left.

Where This Leaves Us

Both nails are in, silver delivered on its warning overnight, the miners decline as well. The dollar sits on a confirmed breakout while oil re-arms the channel.

A war restarted this morning, and gold went down. That is the entire story of this market in one sentence.

There’s a tremendous profit potential in all this, especially when you look at the situation from the long-term point of view, which is what we do in the Gold Trading Alerts. If you’re not ready to subscribe yet, I encourage you to sign up for our free gold newsletter.

Sincerely,

Przemyslaw K. Radomski, CFA