Today’s pop-up in gold is nothing more than some election uncertainty and will most probably subside shortly…
In yesterday’s analysis, I wrote that the market situation is likely to become more specific right before, during, and perhaps shortly after the U.S. presidential elections. And by “specific”, I mean that the markets could begin moving against their previous trends.
That’s precisely what we’re witnessing right now.
Yesterday, I commented on the chart above in the following manner:
In fact, I wouldn’t be surprised to see a corrective move lower that would trigger a brief move higher in the precious metals and mining stocks. However, that would only be temporary, and not likely to last more than several days.
That’s what we see right now – it’s not a game-changer, but instead, it’s a relatively normal uncertainty-based phenomenon.
Gold is moving higher, but not dramatically so. This is in perfect tune with yesterday’s comments.
And what about gold miners?
Miners rallied – which is also in tune with what I wrote previously in my analyses. On Thursday, after gold had declined significantly (on Wednesday), I’ve indicated the following:
Miners have been undermining gold, which is bearish, and they have also broken below the recent lows, which is also bearish. Moreover, miners have just declined on strong volume after opening the day with a price gap, which at first sight, is bearish.
The theory is that such sessions are particularly bearish, as they supposedly show the bears’ strength. But, before applying any trading tip into practice, it’s important to check if it had indeed worked on a given market, especially in the recent past. And the aforementioned did work… In the opposite way!
For the third time, miners are declining substantially during one day on a strong volume. We saw the same thing happening in mid-August and late-September. None of them were followed by lower miner prices. Instead, we’ve witnessed corrective upswings that didn’t change the overall downtrend.
So, from here on in, will miners rally or decline? Overall, the very near term (until the elections in the U.S. and a day-two after that) is unclear. At this point, a temporary rebound here would not surprise me at all, and if we see one, I expect it to be followed by a major slide. That’s precisely what happened right before and after the elections in 2016.
The summary above remains 100% up-to-date. Miners moved a bit higher, and given today’s pre-market upswing in gold, they might also rally during today’s session. Still, the aforementioned is likely nothing more than a pre-election uncertainty that drives the prices and will most probably subside shortly.
Finally, let’s look at how gold performed after the previous U.S. presidential elections in 2016.
It turns out that on average (the thick red line is the average) based on the elections, nothing really happened. However, if we look at the individual price paths, it is evident that gold reversed its course on election day in 2008 and 2004. The link to 2004 and 2008 might not be as important, due to the fundamental similarities in both years including massive stock price plunges, and precious metals.
Furthermore, since the chart above is based on closing prices only, it misses one major point – the huge 2016 intraday (actually, overnight) reversal, when gold moved over $50 higher only, to slide shortly thereafter.
So, what does all the above mean for gold? Well, it means that my previous comments are completely justified and legitimate. The trend (which right now is down in the short term) is likely to remain intact. But, a counter-trend pop-up is quite possible, and if it is visible, we shouldn’t attribute any major implications to it.
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Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager