Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
The Ultimate Demise Of The Euro Union - 1st Sep 14
Palladium Price Breaks Multi-Year High Over $900 - 1st Sep 14
When Complexity Becomes Chaos - 1st Sep 14
Designer War By Default - 1st Sep 14
Islamic State or Russia? Ten Key Questions Towards Pragmatism - 1st Sep 14
Mixed Emotions for the Gold Market - 1st Sep 14
These Clowns Are Dragging Us Into War with Russia - 1st Sep 14
Marx And The Capitalist Cancer Of Overproduction - 1st Sep 14
Scottish Banks Salivating at the Prospects for an Independent Scotland of 6 Million Debt Slaves - 1st Sep 14
Small Man Europe Is Now In “Effective State Of War” With Russia - 31st Aug 14
The Unintended Blowback Of False Flags - 31st Aug 14
Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed - 31st Aug 14
Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge - 31st Aug 14
If U.S. Consumers are so Confident Why aren't They Spending? - 31st Aug 14
Scotland Independence House Prices Crash, Deflationary Debt Death Spiral - 31st Aug 14
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Is Plunging U.S. Dollar Bullish or Bearish News for Gold Price?

Commodities / Gold and Silver 2013 Aug 12, 2013 - 10:43 AM GMT

By: P_Radomski_CFA

Commodities

Without a doubt, the recent weeks were tough for the U.S. currency. The U.S. dollar fell as investors weighed when the Federal Reserve would slow the pace of bond purchases that had contributed to weakening the greenback. It also dropped against all its major counterparts after a government report last week showed American employers hired fewer workers in July than economists had predicted. Another bearish factor which weakened the dollar was strong data from China that suggested economic optimism.


"The weakness in the dollar is causing some short-covering in gold," said Ronald Leung at dealer and refiner Lee Cheong Gold Dealers in Hong Kong.

What has happened with gold in the recent weeks? After a rally to over $1,347 the yellow metal declined below $1,300 per ounce and then pulled back to $1,320. In the following days we saw a sharp drop to a three-week low and an equally strong move to the upside which took gold to over $1,316 per ounce. Some investors said it was a rollercoaster.

Yesterday, gold bounced higher and gained nearly 2 percent. Its recovery was helped by the dollar's slide to a seven-week low. However, the improvement didn’t last long and today the shiny metal eased back below $1,310 an ounce as the dollar recovered.

This interesting relationship between the U.S. dollar and gold has encouraged us to examine the US Dollar Index and the gold chart from two other perspectives to see if there’s anything on the horizon that could drive gold prices higher or lower shortly. We’ll start with the USD Index very long-term chart to put the gold charts into perspective (charts courtesy by http://stockcharts.com.)

As we wrote in our essay on gold, stocks and the dollar on July 24, 2013:

The breakout above the declining support/resistance line (currently close to 79) was still not invalidated.

The above paragraph is up-to-date also today. From the long-term perspective, the situation remains bullish.

Now, let's zoom in on our picture of the USD Index and see the medium-term chart.

On the above weekly chart, we can see that in the past week, the USD Index declined once again. The recent declines took the index to the medium-term support line (currently close to the 81 level). Keep in mind that this strong support line stopped the decline in June (it was not even reached) and encouraged buyers to act, which resulted in a sharp rally in the following days. Taking this into account, we might see a similar situation in the coming days.

From this perspective, the medium-term uptrend is not threatened, and the situation remains bullish. Therefore we can expect the dollar to strengthen further in the coming weeks.

To make the U.S. dollar perspective complete, let’s see how the situation in  the US currency may translate into the precious metals market. Let’s take a look at the Correlation Matrix (namely: gold correlations and silver correlations).

Basically, there have been changes in the values of coefficients since we commented on them previously in our essay on gold, stocks and the dollar on July 24:

We have seen negative correlation between the metals and the USD Index(…). Taking the short-term, bullish outlook for the USD Index into account, the implications for gold, silver, and the mining stocks are clearly bearish at this time.

At this point we would like to add that even though the USD Index declined by almost a full index point this week, gold didn’t rally – it moved lower by about $3. Gold’s underperformance remains in place – or at least Thursday’s rally is not enough to change it.

Once we know the current situation in the U.S currency and its implications for the precious metals sector, let's find out what happened during the recent days and check the current situation in gold from the perspective of the Australian dollar. Does it provide any important clues as to further gold’s price movements?

On the gold priced in Australian dollar chart, we see that the previous breakout was invalidated very quickly, and the price came back below this declining resistance line. However, buyers didn’t give up and triggered one more move to the upside. That increase resulted in the next breakout above the previously-broken resistance/support line.

Despite this growth, gold did not manage to break above the June top as the above-mentioned strong resistance level stopped the rally. The corrective move took the yellow metal below the previously-broken resistance/support line and reached the 50-day moving average.

Keep in mind that we saw similar price action in June. After an invalidation of a breakout above the above-mentioned declining support/resistance line, there was a pullback to this resistance line. The buyers, however, didn’t manage to push gold above it, resulting in strong declines. This time, the gold bulls were stronger and pushed the price a bit higher, but it doesn’t change the similarity between these two situations (still looks like a double-top pattern).

In June, the strong corrective move took gold‘s price all the way back down to the April bottom area. If we see similar price action here, gold priced in Australian dollars will likely decline heavily once again.

So, from this point of view, the recent price increase hasn’t changed the current outlook, and the implications remain bearish.

To finish off, let’s have a glance at a chart that synthesizes the “non-USD” perspective, as it features gold‘s price relative to an index of foreign currencies.

At the end of July we saw a move to the upside which took gold above the declining support/resistance level. However, the yellow metal didn’t manage to move back above the April bottom. This event brought negative consequences in the following days.

We clearly see that gold showed weakness in the past week as well as this one, and the breakdown below the April’s bottom was verified.

Gold has not broken below the declining support line so far. When it does, the decline will be likely to accelerate.

Summing up, the situation in gold remains bearish. Gold moved higher on Thursday, but overall it’s down $2.90 this week (taking Thursday’s closing price into account), while at the same time, the USD Index is down almost a full index point. Gold continues to underperform the dollar and a one-day rally on relatively low (compared to the size of the rally and volume accompanying previous days’ declines) volume doesn’t change that. The situation remains in tune with previous bearish price patterns.

To make sure that you are notified once the new features are implemented, and get immediate access to our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold newsletter. Sign up today and you'll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Precious Metals Investors and Traders along with our 14 best gold investment practices. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Gold & Silver Investment & Trading Website - SunshineProfits.com

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014