Gold price touched its 61.8% Fibonacci retracement, just like before. But white metal’s history is also rhyming.
Let’s start with a quick note regarding gold. Namely, nothing changed. Just as I had explained previously, a move to the 61.8% retracement in gold is a completely normal phenomenon and yesterday’s slide as well as today’s lack of meaningful action are in tune with the past tops in gold.
Gold just jumped to its 61.8% Fibonacci retracement. On a day-to-day basis, we just saw a sizable, two-day rally that might seem like uptrend’s continuation.
BUT.
This is exactly what used to happen multiple times after gold tops. This is the default post-top price action for the yellow metal. Again, default.
That’s how gold topped in 2020, 2022, and 2023. It even topped in this way in mid-2019.
In 2008, gold corrected slightly more than 61.8% of its initial decline before plunging, but I’ll move to that in a while, when I’ll describe the analogies between now, 2008 and 2022 in multiple markets.
For now, the above chart provides enough context to prove (!) that the current move up in gold – to its 61.8% retracement – is a normal part of the post-top decline.
Normal, default – whatever one chooses to call it, the key thing about it is that it’s NOT a game-changer. It’s not a return to the previous uptrend. Or at least what we saw so far is NOT an indication thereof.
Impossible to see when looking at just the day-to-day performance, I know, but it’s so obvious and clear when we take a step back and look at the situation from the distance.
As far as the link to 2008 and 2022 is concerned, I described it more thoroughly on Wednesday, but the implications remain up-to-date. I added Fibonacci retracements on the gold charts so that you can see that what we see now is indeed NORMAL.
We saw something similar also in 2008.
Now, as I had indicated earlier, silver is also repeating its previous performance.
They say that the only new thing in the world is the history that one hasn’t studied, and it seems to be true (of course, it’s not about technological progress, but about the general ways in which similar events cause similar results as humanity is not that unpredictable).
The white metal’s behavior is in tune with this principle.
And although I marked it on the above chart, I don’t mean JUST the fact that silver outperforms gold on a very short-term basis once again, which serves as a sell sign.
No.
I also mean the fact that silver corrected in a way that’s completely normal, given what we previously saw in the current ($26 - $30) trading range.
If you look at the areas that I marked with orange rectangles, you’ll see that silver’s volatile tops in this trading range are usually (four out of four recent cases) followed by a sharp decline and then a comeback before a deeper decline follows.
In the case of the mid-2021 top, we saw more than one comeback, but they were all relatively small.
And what do we see now? Silver plunged, and we saw a comeback. Bullish? No – that’s a normal part of the post-top behavior. It’s not a bullish pattern, it’s a continuation of a bearish one.
Also, the analysis of volume shows that the current situation is most similar to what we saw in mid-2002 and at the early-2021 top because that’s when we saw spikes in volume levels just like what we saw at this year’s top.
Both above-mentioned tops were followed by the same price pattern – sharp slide and then a comeback.
When looking at what stopped the initial decline and triggered the rebound, we see that it was the 50-day moving average (marked with blue) that triggered the current comeback, and we saw more or less the same thing in early 2021 and in early 2022. Again, both cases are similar to what we see now, and they were both followed by significant declines in silver prices.
This means that no matter how you slice it, the current price behavior of silver is not bullish, but bearish.
That’s one of the things that will seem obvious with the benefit of hindsight but that appear difficult to trust when they are happening.
Also, while we’re in the realm of analogies, please note how similar the current price performance of the GDXJ is to what we saw at the 2023 top.
It’s not just the sharp rally and the double-top pattern (with lower second top) that makes both cases similar. Even the RSI indicator’s (upper part of the chart) performance points to the situation being analogous!
It seems that the major tide is here in the case of currencies (USD/YEN!), stocks (tech stocks, broad market), bitcoin, and precious metals. It also seems that junior mining stocks provide an excellent opportunity right now, and I invite you to subscribe and read all key details in my premium Gold Trading Alert (along with trading details). Subscribe today.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief