Gold Price Forecast – Buckle Up For This Move

September 4, 2020
CFA, Editor & Founder @ Sunshine Profits

gold bars

After a profound spell of weakness, the USD is getting ready to move, not leaving the yellow metal unaffected. Conversely, it seems that what is about to happen in the USD Index will have a profound impact on what happens in the yellow metal.

In short, in my view, the move below the mid-August low in the USD Index is a very recent and likely a very temporary development.

Remember when in early 2018, we wrote that the USD Index was bottoming due to a very powerful combination of support levels? Practically nobody wanted to read that as everyone “knew” that the USD Index is going to fall below 80. We were notified that people were hating on us in some blog comments for disclosing our opinion - that the USD Index was bottoming, and gold was topping. People were very unhappy with us writing that day after day, even though the USD Index refused to soar, and gold was not declining.

Well, it’s the same right now.

The USD Index is at a powerful combination of support levels. One of them is the rising, long-term, black support line that’s based on the 2011 and 2014 bottoms.

The other major, long-term factor is the proximity to the 92 level – that’s when gold topped in 2004, 2005, and where it – approximately – bottomed in 2015, and 2016.

The USDX just moved to these profound support levels, and it’s very oversold on a short-term basis. It all happened in the middle of the year, which is when the USDX formed major bottoms on many occasions. This makes a short-term rally here very likely.

While it might not be visible at the first sight, the USD Index moved briefly below the long-term, black support line and then it invalidated this breakdown. This is a very bullish indication for the next few weeks.

Please note that the major bottoms in the USD Index that formed in the middle of previous years often took form of broad bottoms. Consequently, the current back and forth trading is not that surprising. This includes the 2008, 2011, and 2018 bottoms.

On the above short-term USDX chart, we see that the currency invalidated all short-term breakdowns:

  • Below the mid-August low
  • Below the late-July and early-August lows
  • Below the declining red support line

The implications of these invalidations are very bullish, especially that we saw this show of USDX’s resilience right after series of bearish news, for instance in the form of the dovish change in the Fed’s approach.

Indeed, it didn’t take long for the USD Index to break above the declining resistance line shortly after invalidating the above-mentioned breakdowns. At the moment of writing these words, the USD Index is verifying this breakout, which has even more bullish implications.

The bullish implications for the USD Index are bearish for the precious metals sector.

As far as gold is concerned, we previously wrote the following:

Gold topped right at the triangle-vertex-based reversal when the USD Index invalidated its breakdowns. It also happened at the 61.8% Fibonacci retracement.

The final top in gold is most likely in, and we expect the yellow metal to slide shortly. The confirmation of the breakdown below the rising support line based on the March and June lows will likely serve as the “go!” of the move. What we saw recently is already the “get ready, set” part.

Indeed, gold finally broke below the rising medium-term support line. This breakdown is a big deal, as all previous attempts were invalidated.

Since this support is so strong, we wouldn’t rule out a rebound, quite possibly back to it. Such a verification (if gold doesn’t invalidate the breakdown that is) would be very bearish for the short term.

Please note that there is another triangle-vertex based turning point in several hours (we are writing this on Friday, before the U.S. market’s opening bell), so we might see the final move up shortly that is then followed by a substantial decline next week.

Summary

The king of metals appears to have reversed; and the greenback stands ready to power gold’s  upcoming downswing.

The following days are not likely to be pleasant times for anyone who refuses to jump on the bullish bandwagon just because prices moved higher in the previous months. But what’s profitable is rarely the thing that feels good initially. As silver often moves in close relation to the yellow metal, forecasting gold price’s rally without a bigger decline first is thus likely to be misleading. The times when gold is lastingly trading well above the 2011 highs will come, but they are unlikely to be seen without being preceded by a sharp drop first.

Naturally, the above is up-to-date at the moment of publishing and the situation may – and is likely to – change in the future. If you’d like to receive follow-ups to the above analysis, we invite you to sign up to our gold newsletter. You’ll receive our articles for free and if you don’t like them, you can unsubscribe in just a few seconds. Sign up today.

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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Przemyslaw Radomski, CFA, is the founder, owner and the main editor of SunshineProfits.com.  You can reach Przemyslaw at: http://www.sunshineprofits.com/help/contact-us/.

 

The volume of all the gold ever mined can occupy a cube 63 feet on each side.

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