This means that gold would likely slide well below…
Today is the final trading day of the first quarter of 2020. Seems irrelevant, right? But it’s not. Various types of performance are often calculated on a monthly basis, and quarterly calculations are used for a more broader overview. This includes the stock market performance, and it also is relevant for us, precious metals investors and traders.
The monthly and quarterly performance numbers are what is then automatically written about, what’s shown on TV and what people use to then make decisions on regarding the future. One might say “my investment fund is based on a very sound strategy that’s based on meticulous research, combines sector-specific indicators, is based on strategically changing exposures to various parts of the sector it specializes in, has special algorithms for individual stock selection, carefully handles leverage, and is very adaptable, should the circumstances change”, but it would most likely not get the same kind of attention as “it seems that my investment fund is going to end this quarter over 140% higher after all fees“.
The odds are that you yawned while reading the long sentence describing the approach, but the quarterly performance estimate generated a “whoa!” reaction. The next thought would probably be something along the lines of “hey, maybe I should invest in it”. If that was a big negative number, you might think the opposite.
The Fed knows very well how it works. Trump knows how it works, and so does his administration.
Ok, so what? Everyone knows that quarterly numbers are important – what makes it something worth keeping in mind right now?
The thing that makes the difference is that while most people don’t have the ability to impact the quarterly closing prices, the Powers That Be – do. We don’t want to elaborate on the mechanisms through which this goal might be achieved, and whether or not they are legal (It’s not market manipulation if it’s done officially, right? Like interest rate management…), we just want to emphasize that it is something that we should expect. Of course, that is if the Powers That Be really want to prevent further declines on the stock market. And they definitely and desperately want to prevent them.
In our view, they don’t stand a chance against the entire market that is slowly, but surely getting frozen by fear. Well, maybe not so slowly. The initial reaction was substantial, but the worst is yet to come. And it’s going to be much, much worse than it is. But we already elaborated on that matter yesterday. What we wanted to emphasize today, is the very quick possibility of seeing higher stock market prices today, and perhaps some turbulence (in terms of intraday market volatility) in general. If that happens – please keep in mind that it’s most likely only temporary and the market are likely to move lower (except for the USD Index) soon, anyway.
Also, if the Powers That Be are going to intervene and try to push the markets higher, you know which market is the one least likely to get support? The precious metals market. Gold could get some temporary boost (after all, in 2008 there was a third high that exceeded the previous two and we have seen that so far), but we wouldn’t expect one in case of silver or miners.
Having said that, let’s move over to the greenback.
Is the short-term correction in the USD Index over, and has it already resumed its rally? Another wave up in the USD Index would likely correspond to another wave down in gold, silver, and miners. It’s getting more likely with each passing hour.
The USD Index already broke above the declining resistance line, and while the breakout is not yet confirmed, it’s already a positive sign.
The second positive sign will be, if the USDX is able to close the day higher than it closed yesterday. Why? We compared the corrections in similar times and here’s what we found.
Based on the above chart, we see that there were two similar cases – one in 2008 and the other in 2011. These years are also similar due to the fact that in both cases we saw major tops in gold.
Given the size of the most recent rally, the 2014-2015 rally might appear similar, but the correction that we saw back then, was not big enough and the preceding rally was not sharp enough to be really comparable. That’s why we’re focusing on 2008 and 2011.
In 2008, the USDX corrected a bit below its 50% retracement, but not to its 61.8% retracement – just like it did recently. There were moves both up and down during the corrective downswing, and the thing that confirmed its end, was the second daily gain.
Exactly the same thing was the case. The shape of the decline was different, and the decline was deeper (it moved below the 61.8% retracement but the USDX stayed there for just 2 trading days), but once we saw two daily gains in a row, it served as a confirmation that the decline was over.
The USD Index just posted the biggest daily gain in the last 7 trading days and it’s moving higher also today. Unless it slides later today, it seems that we’ll get the above-mentioned bullish confirmation today. This means that gold would be to likely to slide well below $1,600 soon, and… The “storm” would really begin.
Thank you for reading today’s free analysis. We had taken profits from the previous long positions in mining stocks on March 25th, and we entered new short positions in the miners on March 26th. Given yesterday’s weakness in the mining stocks, it seems that we took profits from our previous long positions exactly on the day that the miners topped in terms of the closing prices, and that we entered the new short positions exactly on the day that the miners topped in intraday terms. This assumes using GDX as a proxy. If we use GDXJ, we entered the short position on the day when they made the second intraday top of their double-top formation.
We provide details regarding our profitable short position in the mining stocks in the full version of today’s analysis.