Gold Price Forecast – Last Pause Before The Slide

September 29, 2020
CFA, Editor & Founder @ Sunshine Profits

gold price analysis

For month after month, in this tempestuous year that is 2020, the gold price continued to peak new heights, having a crystal-clear bullish prospect in August, setting a record 2020 price of $2,089 ($4 away from our target), which was a historical record as well. However, the bullish outlook for gold has failed to materialize throughout September, with the recent USDX breakout and Fed’s uncertainty regarding the stimulative measures creating conditions for a prolonged bearish behavior.  

Consequently, gold declined, which is not surprising at all given what we wrote about its situation:

Gold broke below the August lows, making it clear that the previous 2020 rally is over. To be honest, it was already clear when gold confirmed the breakdown below the rising red support line, confirmed the breakdown, and then even verified it by moving a bit higher, but failing to rally back above it. The current slide is only the consequence of what was already clear previously.

The breakdown below the August lows is not even the most important thing that just happened in gold. The key thing is that gold decisively invalidated its breakout above the 2011 highs.

The central banks around the world are printing money like crazy – much crazier than what we saw before 2020… Why wasn’t gold able to hold the previous gains? Something doesn’t add up…

The reason is the same reason why silver and mining stocks managed to only correct about half of their declines from the 2011 highs, instead of following gold to new highs. And that reason is:

Gold, and the rest of the precious metals sector was not ready to rally yet as it didn’t fully complete its bearish cycle, and whatever happened this year was a massive interruption in the cycle that didn’t end it.

The decline that gold was likely to take place, and instead if was forced to rally. But this rally didn’t hold, and since gold just invalidated the breakout above its 2011 highs, it seems that we’ll see a huge decline, anyway. And the bearish cycle will then – and only then – be completed.

Just as we expected it to, gold paused after the triangle-vertex-based reversal. The pause might be over, or we might still see a corrective upswing before the slide continues, but still, the very short-term outlook is unclear. In my opinion, regardless of what happens this week, it’s quite clear that gold will decline in any case during the following weeks, just as the USD Index is intended to rally as well.

Based on 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, which is based on the recent 2020 rally. There might be an interim bottom as well, closer to $1,800.

As far as the white metal is concerned, previously, we wrote 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 exactly what happened.

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).

 

Summary

The days of USDX trading below its declining resistance line appear to be over, and that won't leave the precious metals sector unmoved. After gold broke below its medium-term rising support line, and it verified this breakdown.

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

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