Short-Term Peak Is In | Seeking Alpha

By David Brady

While correlations between different asset classes come and go, there are those that are durable and stand the test of time. Such are the inverse correlations between both real yields and the dollar with respect to Gold. Focusing on the dollar, it tends to move inversely to Gold more often than not, but there are periods when they rise and fall together. Now is not one of them and until that changes, it’s a good indicator for Gold and the rest of the sector, until proven otherwise. This is the inter-market analysis, or I, in my FIPEST process.

I have been posting on the obvious Bullish Flag in DXY for a couple of weeks, waiting for the break to the upside. Such breaks typically signal at least a short-term rally. After several failed tests and breaks, it looks like DXY has finally broken up. I don’t rule out a backtest of the former trendline resistance, but my targets on the upside are 106 minimum to 110 maximum.

The effect on Gold and Silver is obvious:

GOLD

This has been aided by a series of negatively divergent higher highs. My targets on the downside in Gold are 1750 min, 1700 max.

SILVER

Silver has turned down for 2 days in a row. What’s worse is that it is in a Bearish Flag pattern and if the lower trendline is broken at around 23.40, this could get ugly fast. The series of negative divergences in Silver also suggests that this has a higher probability of occurring. My targets are 22-20 on the downside, with a small chance of hitting the 19s.

I have similar targets for GDX at 25-27 and SILJ at 9.50 or slightly below. The miners should perform better than the metals as their ratios are due a bounce.

Switching gears, we’re also heading into a very illiquid period, the holiday season, when many traders are off their desks. This is typically a great time for the Bullion Banks to dump futures on the market to drive down an already falling price, taking out stops along the way, and covering their shorts at lower levels for big profits. While this is not guaranteed by any chance, it is a high probability event given the circumstances.

In summary, it looks like the peak is in for now. Even if we get a backtest in DXY and one more high in Gold and Silver, which I doubt, the destination remains the same in my humble opinion, down. But far from being disappointing for Gold and Silver bugs, this would be what is called a Wave 2. What follows Wave 2? Simply put, this could be last great buying opportunity for some time.

Despite my short-term bearishness, I remain a screaming bull in this sector, with conservative targets of 2300+ in Gold and 35-45 before this rally is done. The miners will probably do even better. Don’t short a bull market; use this to buy the dip, because if I’m right, you’ll get paid handsomely for doing so.

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