Gold Price Forecast – Can the October Rally Really Change Anything?

October 7, 2020
CFA, Editor & Founder @ Sunshine Profits

gold time

Looking at the precious metals market, it’s highly likely that the unsteady behavior will continue, with COVID-19 rise of infections, Trump’s health headlines, USDX’s momentum, Fed stimulus effects, U.S elections race, and God knows what else arriving in store this October, and throughout the end of the year. It’s definitely not the time to take substantial market risks and jump to quick conclusions.

Therefore, instead of just repeating what most analysts are saying, let’s consider gold and USD are responding to the most recent developments. After all, the strength of the reaction can tell us a lot about the way, in which the markets are really willing to move. And the best way to measure this is by applying the technical tools.

In today’s analysis, we’ll focus on the short-term developments in the key precious metals: gold and silver. Let’s start with the former.

Last Friday, we’ve commented on the above gold chart above in the following manner:

The short-term triangle-vertex-based reversals were quite useful in timing the final moments of the given short-term moves in the past few weeks. Please keep in mind that the early and late September lows developed when the support and resistance lines were crossed.

We can see the same thing happening once more. Based on the recent highs and lows, yesterday, the support and resistance lines both crossed again. And indeed, gold is trading below yesterday’s closing price in today’s pre-market trading.

Now, this technique might not work on a precise basis, but rather on a near-to basis, and given the highly political character of the current month (before the U.S. presidential elections), things might move in a somewhat chaotic manner… But still, this technique worked multiple times in the previous months and years, and it has worked recently as well. It seems quite likely that the days of this corrective upswing are numbered.

While gold didn't start with its decline right after the most recent triangle-vertex-based reversal, please note that it hasn't happened previously. What happened was that it ended the decline, instead of starting a corrective upswing. The move higher took place several days later, after witnessing a pause beforehand. 

Hence, it's absolutely normal that gold didn't decline yet, and that it appears to have ended the rally instead. The current pause is very much in tune with what happened previously - in late September. The implications were not invalidated, and therefore, they remain bearish.

According to the chart above, the likely downside target for gold is at about $1,700, predicated on the previous lows and the 61.8% Fibonacci retracement, based on the recent 2020 rally.

As far as the white metal is concerned, previously, we’ve indicated the following:

Silver is also after a major breakdown and it just moved slightly below the recent intraday lows, which could serve as short-term support. This support is not significant enough to trigger any major rally, but it could be enough to trigger a dead-cat bounce, especially if gold does the same thing.

Once again, that’s precisely how things have turned out.

At this point one might ask how do we know if that really just a dead-cat bounce, and not a beginning of a new strong upleg in the precious metals sector. The reply would be that while nobody can say anything for sure in any market, the dead-cat-bounce scenario is very likely because of multiple factors, and the clearest of them are the confirmed breakdowns in gold and silver, and – most importantly – the confirmed breakout in the USD Index. The invalidation of the breakout above the previous 2020 highs in case of the general stock market is also a bearish factor, especially for mining stocks (and silver).

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’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 stays valid at the moment of publishing and the situation may – and is likely to – change in the future. To receive free follow-ups to the analysis above, we invite you to sign up to our FREE gold newsletter. Sign up today.

Thank you.

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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Palladium, platinum and silver are the most common substitutes for gold that closely retain its desired properties.

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