The Final Pullback – But in the USDX or in Gold?

The reason is that gold and miners moved to their declining resistance line based on the most recent highs.

Miners moved slightly above it, but the breakout is far from being confirmed.

Given where the USD Index is, it seems only a matter of time – very little time – before the declines in the precious metals resume.

Confirmed Breakout Keeps Dollar Rally on Track

Yes, the USD Index just moved below 100, but it’s now trading very close to its rising support line. The same line that triggered a reversal about two weeks ago.

That’s one of the reasons to expect the continuation of the rally in the USD Index.

The other reason is the fact that the breakout above 100 was already confirmed by three consecutive daily closes and a weekly close. This makes the subsequent rallies very likely.

We can see the same thing on the chart featuring gold futures. Gold is once again testing the 61.8% Fibonacci retracement level and the declining resistance line.

It’s likely that the top is already in, but if it isn’t, then I don’t expect gold to go beyond its previous November high. The latter would be in tune with what gold did in 2011.

History Rhymes: A Limited Upside Before the Turn

The history doesn’t have to repeat itself to the letter. It’s very likely to rhyme, though.

Consequently, I’d view the move to $4,250 or so in gold futures as the possible, but not the most likely outcome. Also, while I’m forecasting silver at much higher prices in the following years, I don’t think we’ll get there without a medium-term decline first.

Silver moved higher as well, but since it moved to a new high earlier this month – and above the October high – we don’t get the analogous declining resistance line on this market.

Instead, we see that silver corrected half of its recent decline. This could mean that it topped, but if gold is to move to its November high, silver could rally once again as well. Given that silver tends to outperform in the final moments of a given rally, it could be the case that it rallies for several days only to collapse in the aftermath.

Yes, even despite the 100 reasons for silver to soar in the long run, it can still slide in the medium term, especially if we get serious trouble on the stock market. And given that declining bitcoin is likely heralding trouble in the AI sector, that’s exactly what we might get.

Yes, the profits from our short position in bitcoin are likely to grow, but as far as silver is concerned, the biggest opportunity will be to buy at much lower prices due to the unique fundamental situation on this market.

Przemyslaw K. Radomski, CFA
Founder
Golden Meadow®