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Gold Forecast: Gold’s Got A Cold In January
By: P. Radomski | January 10, 2022

If gold made a New Year's resolution to improve, then getting sick might have stifled its plans. Is this the beginning of a pattern for the next few months?

The yellow metal is not sitting by the fireplace, drinking mulled sweet wine while celebrating any victories. Nope. Gold is lying in bed, nursing a cold, and dreaming of higher prices. Silver and mining stocks are not helping, and the USD Index might be exacerbating symptoms.

After last Thursday’s (Jan. 6) big decline, we saw another decline on Friday – this time it was in the USD Index. Interestingly, gold didn’t soar back as a result.

This tells us something important, even though the session might appear uninformative or just plain boring. Namely, it tells us that the precious metals market wants to move lower and not higher.

If the latter was the case, gold, silver, and mining stocks would have surely taken advantage of the decline in the USDX and magnified this indication by rallying profoundly. Instead, they just took a breather after Thursday’s decline. That’s bearish. Let’s take a closer look.



As you can see on the above chart, the USD Index declined visibly, so this move shouldn’t have been ignored by the PMs. And yet, it was. So, as I wrote earlier, the implications for PMs are bearish.

Technically, the USDX didn’t invalidate the breakout below the June 2020 low, so there were no bearish implications for the USD Index based on Friday’s session. This, combined with a weak reaction in the precious metals market, makes the situation particularly bearish for the latter.

The USD Index is likely to rally shortly – if not right away, and when that happens, the PMs are likely to respond by declining profoundly. I don’t think that predicting higher gold prices while there is a bullish outlook for the USDX is a good idea.



As you can see on the above gold chart, despite the USD’s decline, gold was unable to get back above its previous rising support line. The sell signal from the Stochastic indicator (lower part of the chart) wasn’t invalidated either.

Yes, the shape of Friday’s session makes it look like a reversal hammer candlestick and the volume that accompanied this move was quite high, but it seems to me that the relative performance of gold vs. the USD Index and the fact that gold was unable to rally back above the previously broken support are more important.

Besides, silver moved only slightly higher as well.



The rally in silver was too small to change anything. And I can say the same thing about the tiny upswing in the mining stocks.



Not only was the price move relatively small, but the volume was not as high as the one that accompanied Thursday’s decline. Consequently, the possible theory about a reversal in gold is not confirmed by what we saw in the mining stocks.

All in all, the situation in the precious metals market continues to look bearish, and it seems to be only a matter of time when we see breakdowns below the 2021 lows. Gold is sick, and silver and mining stocks appear particularly vulnerable.

Summary

To summarize, the outlook for the precious metals sector remains extremely bearish for the next few months. We’re already seeing it based on how January has started. If a drop in the USD Index isn’t enough medicine to get gold out of bed, then what will be?

Since it seems that the PMs are starting another short-term move lower more than it seems that they are continuing their bigger decline, I think that junior miners would be likely to (at least initially) decline more than silver.

From the medium-term point of view, the key two long-term factors remain the analogy to 2013 in gold and the broad head and shoulders pattern in the HUI Index. They both suggest much lower prices ahead.

And as silver often moves in close relation to the yellow metal, when gold falls, silver is likely to decline as well – it has probably already started its slide. The times when gold is continuously trading well above the 2011 highs will come, but they are unlikely to be seen without being preceded by a sharp drop first.

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