Gold, silver, and miners did move higher, but the move didn’t last.
In fact, prices reversed on an intraday basis, and then they declined. Those declines continue today – benefiting all our trading positions. I just hope you shorted like I emphasized.
Anyway, the question that you might be wondering about is whether the corrective upswing is already over. In today’s analysis, I’ll focus on bitcoin and the stock market – both are related to the performance of precious metals.
In short, I’d give that 50/50 chance, and the reason why is connected with what’s driving the current move lower – at least in the near term.
Beyond the Dollar
The USD Index rallied recently, and while it was one of the factors contributing to PMs declines in the previous week, it doesn’t explain this week’s decline, as the USDX is not doing much.
So… Why did silver and miners decline so much? What triggered that – besides both markets being extremely overbought from the technical point of view?
Sharply declining stocks.
S&P’s decline is not that huge – yet – but it’s significant given the lack of volatility in the previous months.
This is likely to change.
Some of you might even want to consider VIX-related instruments or call options on it – however, I think that shorting bitcoin provides bigger leverage.
Stocks moved to their recent low, and so did silver and miners. This is normal behavior – and something very much in tune with what we saw in 2008.
And this is where things get very ugly.
The stock market is in a similar position to what it did last year. It invalidated the move above the previous year’s high despite several attempts to move above it. It also topped soon after the vertex, based on the previous support and resistance lines.
If history repeats itself, the could decline to about 6,300 in the near term, then correct and then decline to about 5,500.
Can it really decline that low?
Yes.
In fact, I think that a decline to 5,500 would not be the end of the stock market’s declines.
The AI Bubble Bursts
If the AI bubble bursts (and this seems likely given the sharp declines in bitcoin), then the entire stock market could collapse. After all, it was mostly the tech and AI purchases that drove the market so high in the first place.
Speaking of bitcoin, here’s what I wrote about it in yesterday’s Gold Trading Alert, while commenting on its “rebound”:
And while we’re discussing the relative size of the rebound, here’s bitcoin’s no-rebound rebound.
Technically, bitcoin did move higher very recently, but compared to the size of its previous decline, this upswing is practically invisible beyond the very short-term charts.
This is yet another proof of bitcoin’s weakness and a good indication that the profits on our short positions in this cryptocurrency will grow in the near future.
That’s exactly what happened.
The good news is that bitcoin has more room to decline and our profits will most likely increase further. The next support is just below $60k, but bitcoin could decline briefly all the way to $50k (round number, previous low)
This could – but doesn’t have to – trigger a rebound that would resemble the 2024 consolidation. This – if we see it – would serve as the right shoulder of the head and shoulder formation that could then take bitcoin down to $30k – $35k (yes).
What does it all imply for the precious metals market?
It suggests that we could indeed have 2008 ver. 2.0 in the following months.
This is important. While we don’t have much data to confirm this, so far silver’s and miners’ performance is strongly linked to that of the stock market.
