Gold moves to new monthly lows, and miners move to new yearly lows. Is this the Chinese New Year effect?
Volatility Versus Predictability
I’ll start today’s analysis with a question that I just received from one of my subscribers:
I have heard that the gold price tends to decline during the week of the annual Chinese New Year, which is this coming week. Would you expect that event to actually influence the gold price, apart from the many other contributing factors?
Let’s dig in.
The Chinese New Year doesn’t fall on the same day of the year – it depends on the moon phases, so analyzing it is not as simple as checking for regular seasonality.
The above chart features the previous 13 years. I marked each Chinese New Year with a vertical dashed line. And here’s what happened after those cases:
- In 6 cases out of 13 there were rallies (marked with green)
- In 6 cases out of 13 there were declines (marked with red)
- In 1 case out of 13 it’s not clear what the ultimate implications were (marked with black)
So, there were no directional implications.
As far as volatility is concerned, here’s what happened:
- In 7 cases out of 13, the following price moves were big.
- In 6 cases out of 13, the following moves were rather small.
Again, no clear implications regarding volatility.
Also, sometimes the price move continued, and sometimes we saw reversals – but none happened frequently enough to have any sort of reliable implications going forward.
In other words, the Chinese New Year has no clear implications for gold investors and traders.
Other factors do, though.
Gold price broke to new monthly lows after confirming its breakdown below the rising, dashed support line. The verification of the breakdown was a bearish indication, so it’s natural that we saw bigger price declines thereafter.
Also, do you remember that silver tends to outperform gold right before bigger declines? Here’s what’s happening today in silver futures:
Silver soared above $23, and while this move was quickly invalidated, it was enough to show that silver did outperform gold on a very short-term basis.
So, yes, we saw a bearish indication from the gold-silver link as well, which confirms that the silver price forecast for February 2024 remains bearish.
The Bearish Continuation
Mining stocks moved to new yearly lows on Friday, and they are correcting a bit today, but since they are in a decisive downtrend, they’re likely to decline more in the following days. Given their recent momentum, they could reach our profit-take level as early as this week and it could be a good short-term buying opportunity.
As you read earlier today, the Chinese New Year is unlikely to stop it.
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