by David Brady
Sprott Money
In my recent article, “Timeout Due After Big Gains”, I pointed out the increasing risk of a short-term pullback in precious metals and miners. I based this on the strong rally off the low in March, momentum indicators becoming overbought, and sentiment verging on extreme bullishness. In other words, “data”. Then, I tweeted this on Tuesday:
[…] This was in response to a barrage of tweets citing that Gold is a bull market and therefore the RSI is not overbought. While it’s true that the RSI can become “embedded” above 70 for a time in a bull market, such as when Gold soared to 2089 in August 2020, this is the exception, not the rule. When the RSI hits 70 or above, it is overbought, and the vast majority of the time, price falls thereafter, especially when accompanied with negative divergence. So, the odds were heavily in favor of a pending pullback. What happened next?