Forecasting gold prices is not that difficult if you focus on the right things. The key is knowing what they are.
Many people are interested in commodity prices, but very few people know that in order to predict the prices of gold, it’s great to actually analyze mining stock values. But you knew, and you were not caught by surprise by gold’s fake intraday and overnight rallies in the previous days. The fake moves in miners themselves didn’t trick you either. Even silver’s fake breakout didn’t lead you astray.
All those markets (and others) are connected, and thanks to looking at how they interact with each other, one can get a much better overview of the situation and can foresee the outlook with much greater clarity.
Gold price forecast for February 2024 is bearish, and the main reason is… What happened several weeks ago, but I’ll start with yesterday’s reactions to Fed’s interest rate decision and the following press conference.
There was no change in the rates, and the case for March rate cut was dismissed. Markets viewed that as bearish and reacted accordingly. However, in reality, based on how weak mining stocks were in the recent days, it was obvious that the precious metals sector is going to move lower soon anyway. The news just provided the trigger. The same goes for gold’s inability to invalidate its previous breakdown.
The rising dashed line is based on previous short-term tops, and gold broke below it in mid-January. Recently, it moved back to it, but not really above it. Gold made a tiny attempt to rally above it, but the latter was quickly invalidated.
No invalidation means that the breakdown’s bearish implications remain intact. So, even before Fed’s comments, we knew that it was very likely that gold would move lower sooner or later. It turned out that it moved lower sooner.
Now, the move is still just barely visible on gold’s short-term chart, but the slide is clearly visible in the case of the GDXJ – a proxy for junior mining stocks.
The GLD ETF (a proxy for gold), the SLV ETF (a proxy for silver), and the GDXJ ETF (a proxy for junior miners) all formed daily reversals yesterday, but the latter declined much more than gold, meaning that their underperformance continues.
Moreover, GDXJ declined and closed below its rising support line, which adds to the bearish outlook.
And remember – all this is happening right below the neck level of the head-and-shoulders pattern that the GDXJ formed recently.
Yesterday’s drop close to the end of the day was so sharp that it’s barely visible on the above hourly chart – I marked the closing price with the blue arrow.
As you can see, it’s clearly below the orange dashed line, which I used to mark the neck level of the pattern. Based on this pattern, the GDXJ is likely to decline much lower. And since miners tend to lead gold, the latter is likely to decline as well.
But I wrote earlier that the most bearish thing is something that happened a few weeks ago. Here it is:
The truly POWERFUL weekly reversal that we saw in late 2023 was what created a very strong case for gold’s decline in the following months. Gold price has been moving back and forth since that time, so this big decline is still ahead.
The weekly reversals of similar magnitude were followed by big rallies in the past – that’s how the 2022 and mid-2023 tops formed. The 2022 top wasn’t immediately followed by a decline, but rather the price moved back and forth for several weeks and declined only thereafter. And it kept on declining for months.
In my yesterday’s intraday Gold Trading Alert, when the GDXJ was trading at $34.83, I wrote:
“If I didn’t already have a short position in the junior mining stocks, I’d be entering it now.”
Those who entered a short position in the GDXJ at that time ended the day in the green. And those who applied the strategy that I recently featured for shorting junior miners ended the day “even greener”.
As I wrote earlier, the gold price forecast for February 2024 and for the following months is bearish – and that’s the case because of multiple reasons, and I presented some of them above. The bullish situation in the USD Index and the stock market that seems to have topped yesterday (note: a decline in stocks would be helpful, but it’s not required for precious metals or miners to slide) both support the bearish case for PMs and miners, but gold’s powerful weekly reversal is one of the main technical reasons for it. The way gold, silver, and – most importantly – mining stocks performed yesterday makes it likely that the next big move lower is already underway.
And it looks like the profits on our short positions are going to increase shortly.
As always, I will keep my subscribers – informed.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief