2024-03-26 18:25:09
The difference between the last two peaks in gold was only 9 trading days. Just like in 2011, and the similarity doesn’t end there.
Repeating patterns
The shape of price movements leading up to the 2011 high is also similar, as are the length of the consolidation periods.
Please note the days I have marked with red arrows based on huge trading volume. The first marked the beginning of a consolidation that lasted 43 trading days. It then rose and formed a double top, and the two tops were accompanied by very large trading volume. After that, gold started to fall. At first, oscillating back and forth, but then the pace of decline accelerated sharply, and eventually the gold price fell by nearly 400 in 14 trading days.
Now, take a look at what we see happening now with the price of gold.
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Again, let’s start with the days with high volume that I marked with the red arrows. The first of those days marks the beginning of collection. This time, it took 49 trading days, but as in the 2011 chart, we can see three specific peaks that preceded the final bottom. Gold then rose, and following the sharp rise, gold formed a double top, where each of the tops formed was accompanied by very high volume.
It is true that the rise this time was faster and smaller than in 2011, but in general, the similarity is still noticeable.
Going back to 2011, the reaction was very bearish, so the implications of the current situation are also very bearish.
Now, since gold has not risen as much as it did in 2011, and based on this similarity in the pattern, it may not fall as much as it did then. Therefore a proportional approach seems more appropriate. In this case, in 2011, gold simply gave up the gains it had made from the recent rally. If the same thing happens now, gold will likely fall to just over $2,000 within the next week or two.
Gold rose in pre-market trading today, but not significantly. This is quite in line with the post-2011 double top price action – local moves higher were normal, and did not prevent gold from falling.
The interesting thing is that the current sentiment looks very similar to what we had in 2011. I’m not sure if you remember this, but at that time it was impossible to convince people that gold was regarding to move lower. In fact, at that time at the top, I also thought that gold would move higher following this “short stop” – because that is what the double top pattern looked like at the time.
The price of gold was swimming in uncharted waters, and there was no clear analogy for anything like that. This time, we actually have that kind of measurement. One can choose to ignore it and follow the “this time is different, gold and stocks can’t go down” narrative, or one can look at how similar the situation is and analyze the other facts with dispassionate logic.
How logical is it for gold to break new highs with this poor performance of gold stocks?
I don’t even mean the fact that mining stocks and silver haven’t even gotten close to their nominal 2011 highs (because in real terms, even gold hasn’t surpassed their 2011 highs). I mean, even though gold moved to a new all-time high, mining stocks failed to rise further than their previous yearly highs.
No, she was too weak even for that. Gold mining stocks – which should have been particularly strong during the initial phase of the big rally – remain on a steady downtrend over the medium term.
The very short-term corrective rally appears to be over.
After moving above their previous (January) highs for a second time, small-cap mining stocks fell, negating the move. When we saw the same thing in late 2023, that was the final top.
Artistic reflections
Coming back to gold, please note that it formed a major reversal last week, ending the week down $1.50.
The VanEck Junior Gold Miners ETF (NYSE:) was down 1.61% and down 2.12%. The reversal we saw in gold – alone – indicates that gold is regarding to head south, and this comes in addition to multiple other indicators I discussed on Friday and earlier today.
The signals from gold and from gold stocks confirm each other, and the outlook for gold does not look good. This creates a huge opportunity for those who position themselves to benefit from potential price movements rather than being harmed by them. It can be difficult to just act on what the charts strongly indicate rather than following feelings. But those who can do it are likely to win
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