Gold: Don’t be fooled by the rise … the decline will follow Investing.com

Today we finally see it – one last move lower. It is not surprising that the US dollar is resting here, and it is not bearish either.

It is only normal for the market to correct after launching a strong rally as we saw in October and November.

In a previous review, I wrote the following about the chart above:

Yes, while I have been writing about the potential strength of the US Dollar Index and the bullish outlook in general, this kind of resilience is surprising even to me. I would have thought we would see a bigger correction by now – after all, the Americans rose 8 points without the index seeing a bigger decline.

We are not seeing that now, which could mean that it will happen in the following days, or that the movement of the US dollar is so strong that it will consolidate and trade sideways here rather than a real correction.

Anyway, after this week, the US dollar could return to bullish mode because of the monthly turning point (straight curved line). My comments on Monday are still up to date:

“Will we see a correction soon? It’s entirely possible. After all, no market moves up or down in a straight line without a correction from time to time.”

Will a correction in the US dollar lead to a rally in miners? I wouldn’t say this is necessary. The recent rise experienced by both markets was based on geopolitical turmoil (a new type of panic used by Russia), and these usually only have a temporary effect on prices. This is confirmed by the downward movement of gold and the US dollar today. Therefore, it is very likely that we will see a decline in gold and the US Dollar Index at the same time. “

So, yes, a pullback is happening, which means the monthly turning point could happen just like I said earlier – it could push the US Dollar Index higher again. This is likely to contribute to lower values ​​of precious metals and mining stocks.

Today’s movement in the precious metals sector is already confirming these bearish expectations.

After the early rise, gold, silver and minerals moved lower. Overall, gold and minerals rose, but not significantly. The main thing is that they moved up in an insignificant way while the US Dollar Index fell in a meaningful way (just from a daily perspective, but still).

Prime and mining stocks had a good reason to rise today – in a big way – and they didn’t. This suggests that they really want to withdraw in the following weeks. Fortunately, you’re already well positioned to take advantage this fall. Your profits on your short position are likely to increase.

Before we summarize, we would like to discuss one particular topic: the performance of gold around Thanksgiving – during US presidential election years.

The text below is actually based on something I wrote four years ago. Because it was about the past, it is still as current as it was then. Of course, I will add comments about what happened in 2020.

Gold played around Thanksgiving

Thanksgiving falls on the fourth Thursday of November each year, meaning the holiday always falls between November 22 and 28. What usually happens to the price of gold before and after this time? Let’s look at the seasonality of gold in Q4.

During this period, gold usually finds itself before creating a short-term top and begins the biggest decline in the last quarter of the year.

Note that the accuracy scale in relation to the high date may be very low, but it rises just before gold falls. This means that while it is unclear when gold is likely to top, it is very likely that we will see some sort of significant top whenever that happens. Could it be just before Thanksgiving? There are. Could it be a little later? This is also possible.

But this year is not like other years. This year, especially November, is special because of the US presidential elections. So, instead of considering an average of previous times around all recent Thanksgivings, we should focus on Thanksgivings that coincided with the presidential election .

Gold and Gratitude during presidential election years

Let’s examine the last five cases when gold was already past the 1999-2000 bottom and within its secular bull market.

We start with the last case:

Back in 2020, it was after a multi-month slump, rebounding shortly after Thanksgiving. So, that was an exception to the rule. Perhaps the longer decline leading up to Thanksgiving could have indicated that we would see a reversal rather than a continuation of the decline.

Back in 2016, the recession continued right after Thanksgiving, and gold bottomed out in the second half of December.

Four years earlier, in 2012, gold peaked just after Thanksgiving, and as in 2016, gold bottomed in the second half of December.

In 2008, gold peaked just before Thanksgiving, and bottomed in the first half of December.

Finally, in 2004, gold topped shortly after Thanksgiving, creating an initial base in the first half of December. However, it then declined again, ending in January and February 2005 (two separate bottoms).

Thus, Thanksgiving in a US presidential election year was a positive advance for gold in most cases.

More importantly, a review in 2016 was down. This analogy seems more relevant because that was also the year Trump won.

This pattern is consistent with my other thoughts on the gold market. As the US Dollar Index appears to be correcting here – and to reverse based on its monthly trends, gold is likely to have more reasons to fall.

Overall, while there are still some opportunities for gains on gold investments in the long term, the outlook for the precious metals market remains bearish for the following weeks. Profits from short sales in junior mining companies are likely to grow longer.