RIDING THE BULLISH WAVE IN GOLD AND SILVER

In yesterday's analysis, we emphasized that the short-term outlook for the precious metals sector became bullish, and we discussed the silver market in great detail. Both: gold and silver are now higher than they were when we posted yesterday's analysis, which means that taking profits off the table in case of the previous short position was likely a good idea. Since we provided a lot of silver details yesterday, in today's analysis, we'll put greater emphasis on what's happening in the rest of the precious metals sector. In particular, we'll look at the short-term developments in the mining stocks. But first, let's take a look at the very specific chart pattern that we have on the USD Index chart.

Spotlight on the USD Index

In yesterday's Alert, we commented on the USDX in the following way:

Besides, it appears that the USD Index needs a breather as well.

Why? Because it just formed a bearish shooting star candlestick - one of the common reversal patterns. The green and blue dashed lines represent declines that are similar to the October decline. The rallies that followed them were quite sharp, but they too had smaller pauses within them. Both: March-April, and July rallies consolidated after the USDX moved above its 50-day moving average. This happened recently and the reversal shooing star suggests that the time for the corrective downswing is here.

At the same time, it seems that we are seeing a quick shift in the gold-USD dynamics. Gold recently managed to decline regardless of USD's daily show of strength or weakness, but this seems to be changing today. The USDX is up by less than 0.1%, which should theoretically make gold drop at least somewhat. Instead, gold is more than 0.5% higher so far today.

Both: USD's possible short-term decline, and the temporary change in the gold-USD link point to higher gold prices in the near term (perhaps until the end of the month or so).

The bullish implications of the gold-USD link clearly remain intact. Gold moved higher yesterday, even though the USDX ended the session slightly higher. Gold is clearly showing that it wants to move higher in the next few days.

Since the USDX didn't decline after the shooting star reversal, didn't it just show strength? Not necessarily. You see, it didn't soar either. Instead, it continued to trade back and forth in an increasingly tight trading range, thus creating a rising wedge pattern. You can see it more clearly on the below 4-hour chart.

If rising wedge patterns are broken to the downside, they are likely to result in quite sharp declines. This means that while we think the USD Index is going to rally to much higher levels in the following months, it seems that it could move sharply lower in the short run.

Given gold's recent very short-term (and very short-term only) resilience, the above is likely to translate to a sizable short-term rally in the yellow metal.

The Short-Term in PMs

The most important thing about the above chart is that it shows that miners' strength didn't disappear. Conversely, even though they corrected some of their gains before the session ended, miners have moved much higher than either gold or silver did on a relative basis. By relative, we mean compared to the November decline. Gold and silver were barely up, but miners temporarily erased about half of the decline.

Both metals are higher in today's pre-market trading (above yesterday's highs, meaning that everyone who got aboard with our long position is already profitable) which suggests that mining stocks will rally once again today.

Gold and silver were rather reluctant to rally more profoundly yesterday because they just verified breakdowns below the previous support levels and the latter turned into resistance. And they would have likely managed to get back above these levels - if they received help from the USD Index. But they didn't - at least so far. Given the big number of news releases that we're going to get today and tomorrow, it's quite likely that one - or a combination of them - will serve as a trigger for the moves that technicals predicted beforehand.

Our subscribers' profits are growing - this time thanks to a fresh new long position in gold, silver and mining stocks. Would you like to join them and quickly get all the profit-take levels (we aim to catch the easiest part of the move)? All it takes is 9 bucks and a less than a few minutes of your time - gold and silver are already up today - position yourself to profit before the move is over.

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 a subject to change without notice. Opinions and analyses were 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 believed 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.