“…the outlook for the very short term remains bullish, while the outlook for the medium term is bearish.”
In yesterday’s analysis, we emphasized the importance of the USD Index as one of the key drivers for the precious metals market. We wrote about the inverse head and shoulders formation in the USD Index and its implications.
The target based on the above chart was about 98.5.
And here’s how the situation looks like at the moment of writing these words:
The USD Index has almost reached the inverse-H&S-based target that corresponds to the November 2019 high. This means that the greenback is likely to reverse its course shortly.
Now, the particularly interesting thing is how gold and silver reacted to the last few days of higher prices.
Meanwhile in the Metals
In the first days of February, the precious metals sector declined sharply, only to bounce back up in the following days. We wrote that choppy trading is to be expected, especially given the short-term coronavirus-scare-based bullish potential and the conflicting medium-term bearish factors. That’s what we see.
The PMs moved higher yesterday, and in today’s pre-market trading, they didn’t decline even though the USD Index rose, which confirms what we wrote previously. Gold and silver are likely to move higher in the very short term.
As the USD Index declines, gold and silver are likely to rally, and since they managed to show resilience to the most recent daily rallies in the USDX (those of yesterday and today), they are quite likely to magnify USD’s move to the downside.
Consequently, the outlook for the very short term remains bullish, while the outlook for the medium term is bearish.
Thank you for reading today’s free analysis. If you’d like to get to know additional details, such as at what level could the USD Index bottom, triggering a top in the PMs, at what prices gold and silver are likely to top, and when is that likely to take place, we invite you to subscribe today.
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager