May 17, 2023
As we warned back in January, the first half of 2023 has been characterized by repeated hopes of a price breakout in COMEX gold, only to be followed by repeated pullbacks. Another breakout attempt just failed, and those looking for a surge to new all-time highs will have to wait a bit longer.
The first attempt at a breakout was seen back in January. Price rallied over $100 to begin the year, but after some unexpectedly strong economic data, it fell back to unchanged on the year by late February.
Another rally began in March and took price to a “higher high”, coming within a few dollars of a new intraday all-time high two weeks ago. Again though, and just like in February, economic data has driven price backward.
So is that it? Have the highs for the year been set and will price now trade downward, setting off a new wave of despair and hopelessness for gold investors? In a word…no. All we’ve witnessed is the typical pattern of fakeouts and wrongfooting that usually accompanies bull market moves in gold prices. Two-steps-forward-and-one-step-back is the typical price action in gold uptrends, and this pattern is clearly present on the chart below.
The primary culprit behind this current pullback is HFT computer-driven selling that tracks daily fluctuations in the U.S. Dollar Index. That index appears to have traced out a classic “double bottom” feature over the past several months and has recently bounced. How far it bounces will go a long way toward determining how far COMEX gold will drop. For now, it appears that the index has its sights on a test of 103, but if it can get above there, it may reach as high as 106.
The COMEX gold price should continue to have buying support in the area between $1980 and $1990, just as it did in April. However, when the dollar index rallied in February, COMEX gold didn’t stop falling until it reached its 100-day moving average. An extension past 103 in this dollar rally might find gold reaching down to its 100-day again in the days ahead.
And since we’re focusing on price this week, we might as well check in on COMEX silver too. It’s now up less than a dollar year-to-date and giving the holders of physical silver the usual headaches.
As you can see on the chart below, COMEX silver is also tracing out a pattern of higher highs and higher lows. However, as per usual, just when it appeared ready to break out last week, it got the living daylights beaten out of it instead. Sentiment has shifted negatively as a result, and lower prices appear likely in the short term before the next “higher low” is made. Something near $22.50 and the 200-day moving average looks like a possible/probable downside target.
Ultimately, none of these current issues will matter much once the Fed inevitably begins to cut rates as the U.S. economy crashes in the second half of this year. In the meantime, though, you might be looking to add to your stack by buying the dip. To that end, I hope this post helps.
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