Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
Can Stocks Survive Without Stimulus? - 25th Aug 16
Why Putin Might Be on His Way Out - 25th Aug 16
Bond Guru Gary Shilling - The Bond Market Rally of a Lifetime - 25th Aug 16
A Zombie Financial System, Black Swans and a Gold Share Correction - 25th Aug 16
OPEC’s Output Freeze: What Has Changed Since Doha? - 25th Aug 16
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

How to Trade Elliott Waves

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

© 2005-2016 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

Catching a Falling Financial Knife