It is time to update the charts as gold triggered the former valley of $1765 last Friday.
The U.S. dollar index (DXY) opens this post.
Most of you agreed last month with the plan that the dollar index will extend its consolidation to the upside, making a zigzag first to the downside and then to the upside with the target area between 91.40 and 91.80 (blue box). The former was your favorite goal, and it was hit with a margin as the price reached 91.60 at the top of this month.
The earlier map posted last December, I showed you that after this consolidation, the trend down should resume tagging the Y2018 valley of 88.30. The price followed that path as DXY is approaching the 90 handle.
We could see two options. The orange zigzag shows the possible one more leg to the upside to complete the minor retracement around the 91 level and only then continue to the downside. This scenario means more downside pressure on precious metals.
The red down arrow points straight toward the downside target as it means the non-stop drop of the dollar index. This is a favorable option for precious metals.
The current link between precious metals and the “King” is not obvious these days. Two sub-charts show correlation ratios for gold and silver, respectively. Both of them have readings around zero, which stands for the absence of correlation. Moreover, the ratios are rising over time, as they usually should be negative. Let us see if this de-sync persists.
Now, let’s examine the daily gold chart below.
Gold has a very clear structure as it follows the algorithm published in January as the price follows the second most popular red option of the 3rd leg down. The minimum target was hit last Friday as the price breached the second leg’s low down ($1765), establishing the new 7-month low of $1761.
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The completed corrective structure could result in the long-awaited reversal to the upside highlighted with the blue zigzag. The upside trigger is located at the top of the minor consolidation of $1876 that emerged last month. There is no need to rush into the market until it reveals itself. Wait until the price makes a solid move to the upside, and then look for the buying opportunity on the pullback.
The orange option in the DXY chart above could push the price of gold down again, and it could reach the downside of the red downtrend in the area of $1690-1700.
The RSI has not shown bullish divergence signs yet as lower valleys, both in the price chart and indicator sub-chart match.
Let’s take a look at the over-hyped silver chart.
Silver had made headlines recently when the market tried to break up the current large sideways consolidation. It was a rapid and quite powerful move as the price managed to retest the former top around $30, but it failed to progress further to the upside.
The market quickly hammered back the price into the “box” on profit-taking when traders realized that there is no follow-through buying. The dollar index was on the bullish track those days, and gold did not match that irregular price action either. The bullish scenario was eliminated then.
Silver had lost almost all previous gains when the price dropped below $26 on February 4. After that, the corrective structure started to emerge to the upside. It means that the preceding move down from the former top should be considered the first leg. The second scenario of extended consolidation published at the beginning of the month could play out. It means more weakness for silver.
The price could jump to the upside again to touch the green uptrend channel’s resistance in the area of $28.30-28.50 to complete the retracement first. Then the downtrend could resume retesting the long-awaited target in the area of the former valley of $21.67.
The invalidation level for this scenario is located above the new top of $30.08.
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.