Gold price triggers a Dow Theory bearish signal, suggesting lower prices ahead
Alessio Rastani interviews Manuel Blay of TheDowTheory.com on a newly triggered bearish signal in gold and silver markets.
Summary
A significant bearish signal has just triggered across precious metals markets, and Manuel Blay, author of the Dow Theory newsletter at TheDowTheory.com, joins Alessio Rastani to explain what it means for gold and silver investors. The signal was generated when both gold and silver broke below their March closing-price lows, with further confirmation from gold and silver miners ETFs (GDX and SIL). According to Dow Theory principles, this multi-market confirmation constitutes a formal bear market signal, indicating that lower prices are the most statistically likely outcome over the coming months. Both agree that the January highs for gold and silver are unlikely to be retaken in the current year, though both acknowledge that longer-term fundamentals — including currency debasement — remain supportive of higher prices eventually.
Key Takeaways
FULL TRANSCRIPT
Introduction and the Dow Theory bearish signal on metals
Alessio Rastani: Hello and welcome. I'm joined here by Manuel Blay of TheDowTheory.com. We're going to talk about gold and silver, because just recently a very critical and important signal has triggered on metals. Manuel, tell us about the significance of this signal that has triggered on metals — on gold and silver. What does it mean? It is based on Dow Theory, but what does it mean in application to the metals?
Manuel Blay: It means that we are now in a bear market and that the most likely outcome is lower prices. Nobody can predict the future, but there is a statistical record, and when the Dow Theory gets bearish the most likely outcome is lower prices — and for more than just one or two weeks. Normally a bear signal may last at the very least five, six, seven months, or even three to four months. So it means that the most likely outcome is lower prices.
How the signal was generated — secondary reaction, relief rally, and breakdown
Alessio Rastani: I think you mentioned this in your newsletter, but it's worth sharing. Essentially we had a secondary reaction drop on gold and silver from the parabolic highs. So when gold and silver were parabolically going higher and higher some months ago — by the way, we warned about that parabolic rally at the time. Those of you who watch my videos, you know I was warning that things were very dangerous for metals and a potential drop could occur. I remember I got a lot of —
Manuel Blay: — ridicule. Everything.
Alessio Rastani: That's right. Anyway, so after that secondary reaction dropped, we had a bounce which took several weeks and months, and then finally just recently both gold and silver have taken out the lows of March on closing prices — on a closing chart basis. So in other words, if we turn the chart to a line chart, you can see that gold and silver have taken out the March lows. And according to Dow Theory rules as applied by Manuel Blay and Jack Schannep, this has now triggered a Dow Theory sell signal — or Dow Theory bearish signal — which, as you essentially explained, Manuel, is not a good sign for metals. It can indicate a bear market and potentially lower prices. Is that right?
Manuel Blay: Yeah, that's right. We got a signal because silver also confirmed. The first breakdown was, I think, on Friday June 5th by gold, but silver did not confirm. So we still didn't have the bear market signal. This is important, because this is why the signals are so strong — because we use confirmation. So we get gold piercing its March lows. Okay, this is a bad omen. But it's not enough to turn bearish. But then when another asset — in this case silver — confirms, then this triggers the sell signal, and this means that the situation is really bearish, because confirmation is very important. So when the two of them go south, that's a bad sign.
In addition to that, we should also keep an eye on the gold and silver miners ETFs — GDX and SIL. And when you also get confirmation from the miners that they are bearish, this is also bearish for the metals. And this is precisely what has happened right now. When you get multi-market confirmation — not only the confirmation by silver, but also the confirmation from the miners ETFs — it adds more weight to the bearish implications. Does it mean this is carved in stone and prices will for sure go lower? No, nothing is certain. But the weight of evidence tilts toward bearish price action.
Outlook for the rest of the year — can January highs be retaken?
Alessio Rastani: In other words, we have an unfavorable environment right now. So in this environment, which is unfavorable for precious metals, we may see lower prices.
I think it's definitely worth reading Manuel Blay's newsletter for more details. As Manuel says, this is not a good sign for metals. We could see further declines or potentially even a bear market. In other words, it could potentially be a top — maybe a temporary top or a long-term top — but it's not a good sign.
My own personal view is that I don't think the highs of January for gold and silver are going to be taken out this year. Do you agree with that, Manuel? Do you think that the highs of January for gold and silver are going to be taken out given the Dow Theory bearish signal?
Manuel Blay: No, I fully agree with you. There is a lot of technical damage. Furthermore, this bearish signal was preceded by a huge parabolic rally, which is bad — it's good while it lasts, but afterwards it's bad, because now we need a period of digesting all this technical damage. We went parabolic, then there was a sharp breakdown, then there was the typical relief rally that trapped many bulls. Now, once again going to all-time highs? No — it was the relief rally, and now we have a breakdown.
We have violated what I think were the March lows, which were until now the lowest lows, and that is totally bearish. Furthermore, if we look at the charts, we see that there is a lot of technical damage, so lots of resistance has accumulated. It's going to take time to digest this. I may be wrong — I'm not predicting the future and I don't need to — but the most likely outcome is that we don't see new all-time highs this year.
On the longer run, yes, because countries are debasing their currencies and there are many macroeconomic factors that favor higher prices. But now the market needs to digest all this technical damage.
Alessio Rastani: I absolutely agree. So again, just to repeat that point — I'm not expecting, and Manuel Blay is not expecting, the highs that were made in January this year to be taken out this year. But in future years, over the next several years, those levels may get taken out potentially, assuming we get a resumption of the uptrend.
Manuel Blay: And then some.
Alessio Rastani: And then some. Exactly. But for now, this year looks unlikely. As Manuel Blay said, that is not set in stone — we could be wrong. But since we're dealing with probabilities here, not certainties, the probabilities are leaning in favor of the bears, or more downside risk rather than upside, at least for the next several months going into the end of the year.