Breakout or a Single-Event-Driven Upswing? Przemyslaw Radomski

Gold & Silver Trading Alert:
Breakout or a Single-Event-Driven Upswing?

Przemyslaw Radomski


Briefly: In our opinion no speculative positions are currently justified from the risk/reward perspective. Being on the long side of the precious metals market with half of the long-term investment capital seems justified from the risk/reward perspective.
We saw another daily reversal in gold yesterday, during which gold touched its declining medium-term resistance line. Gold broke above this level early today, so we have a breakout. With gold trading above this important line it's critical to take into account the reason behind it and to remember that waiting for a confirmation of a given move proved to be profitable many times in the past.
In short, during yesterday's session we saw a repeat of the previous day's signals and the comments that we made yesterday remain up-to-date. Given another daily reversal in gold and a move lower in gold stocks, it seems that taking profits on our previous long positions yesterday was a good idea. Yes, gold rallied today in pre-market trading, but it seems that this was just the market's overreaction to the news from Switzerland (decision to remove the Swiss franc's peg to the euro). It's not very important for the gold market, but a huge move in the Swiss franc has probably triggered safe-haven buying. Again, it seems to be a one-time event, which doesn't necessarily change the outlook based on yesterday's closing prices. The outlook could change if we see closing price above critical resistance levels for gold, silver and mining stocks, but that's something that we will be able to discuss after today's session (in tomorrow's alert).
Let's take a look at the charts (charts courtesy of http://stockcharts.com).

The situation in the USD Index didn't change at all on Wednesday, so our previous comments remain up-to-date:

In the previous alerts we emphasized the significance of the long-term resistance that was just reached. It - combined with short-term resistance and the cyclical turning point - was likely to stop the current rally and trigger a correction. It seems that we are seeing the beginning thereof.

The USD Index moved a little above the long-term resistance last week, but this "breakout" was quickly invalidated and the USD ended the week below the key resistance. In fact, the weekly reversal is a bearish sign on its own.

Even though the USD Index is likely to have a bullish impact on gold in the coming weeks, we have just seen a move to a declining medium-term resistance line, which means that a local top could be in. The resistance is relatively strong, so even if gold is to move higher in the coming weeks, we could still see a corrective downswing shortly.
Gold moved above this resistance line in today's pre-market trading, but at this time the breakout is not confirmed (there has not even been a single close above it).

From a daily perspective we saw another bearish piece of action in gold yesterday. In fact, we saw what resembled Tuesday's action. The yellow metal reversed on significant volume, which was a bearish sign. Moreover, it invalidated the move above the previous December 2014 high, which makes the very short-term outlook even more bearish. Does it make the outlook very bearish? Not necessarily. Our previous comments remain up-to-date:

Gold closed at the price level that is close to the early Dec. high (in terms of the daily closing prices), so we can say that gold reached a resistance level and could pause or correct at this time. Still, that seems rather unlikely (or any correction would likely not be significant) because the U.S. dollar's decline has not really begun so far. If it materializes, then the price of gold will likely rally regardless of the short-term resistance.