Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold's Rally and U.S. Dollar's Decline or Vice Versa?

Commodities / Gold and Silver 2014 Dec 31, 2013 - 10:58 AM GMT

By: P_Radomski_CFA

Commodities

In our Dec. 20 commentary, we discussed the outlook for the USD Index, Euro Index, and how these currencies were likely to impact gold. We summarized the essay by writing that the situation was bullish for the USD Index, and bearish for the euro. We wrote that the implications for gold were bearish. That was 10 days ago and we haven't seen any big price swings since then (except for an intra-day decline in the USD Index, but we will move to that in just a few paragraphs). Has anything changed? Was there any kind of confirmation or invalidation that would increase the bullishness of the situation for gold? Or, perhaps, the situation is even worse now than it was before (despite a small move higher)? Let's take a look (charts courtesy of http://stockcharts.com).


$USD US Dollar Index - Cash Settle (EOD) ICE

From the long-term perspective, the outlook hasn't changed at all and what we wrote on Dec. 20 remains up to date.

Despite a small decline that we have seen since the beginning of the month, the uptrend remains in place as the breakout above the declining long-term support line was not invalidated.

Now, let's examine the weekly chart.

$USD US Dollar Index - Cash Settle (EOD) ICE

Looking at the above chart, we see that at the end of the week we had a situation similar to those that we saw earlier in December. Like a week ago, the USD Index broke below the medium-term support line based on the February 2012, September 2012 and January 2013 lows (bold black line), but once again this deterioration was only temporary. The dollar quickly rebounded and invalidated the breakdown below this medium-term support/resistance line, which is a sign of strength and a bullish factor. At this point, it's worth mentioning that this time the USD Index didn't decline to the lower medium-term line based on the September 2012 and January 2013 lows (thin black line), which confirms the strength of the buyers. From this perspective, there was no true breakdown and the trend remains up.

Let's check the short-term outlook.

$USD US Dollar Index - Cash Settle (EOD) ICE

Looking at the above chart, we see that the USD Index extended its rally and moved higher breaking above both resistance lines (the horizontal support line based on the June low and the declining short-term resistance line) after our previous article was published. Although the greenback gave up the gains and declined in the following days, it confirmed the breakout above the declining short-term support/resistance line. At this point, we would like to draw your attention to the fact that although Friday's intraday decline was sharp, it actually didn't change much. The U.S. dollar moved below the declining short-term support/resistance line only very temporarily, without a breakdown in terms of daily closing prices, which is a positive signal. On top of that, this decline materialized right before the cyclical turning point.

This combination of factors creates a particularly bullish outlook and it could be the case that another rally in the U.S. dollar is just starting.

Let's now take a look at the long-term Euro Index chart.

The first thing that catches the eye on the above chart is the target area, which was reached once again. As you can see on the above chart, Friday's intraday move took the Euro Index not only above the October high, but also the long-term declining resistance line based on the 2008 and the 2011 highs (in terms of weekly closing prices). However, as it turned out in the following hours, this improvement was only very temporary and finally, both breakouts were immediately invalidated. The currency index closed below these important resistance levels, which is a bearish signal and the outlook remains bearish.

What's most interesting, gold didn't follow that rally, which suggests that we'll likely see further deterioration - similarly to that seen in the past.

In our previous article, we wrote the following:

(...) a similar situation preceded a local top in precious metals. On top of that, previous tops (in 2008 and then in 2011) were followed by major declines in the precious metals sector. If history repeats itself we may see similar price action in this situation.

Please take a moment to compare the euro's performance in the past few weeks with the performance of the precious metals sector (lower part of the above chart).

Let's take a look at our Correlation Matrix to find out how the above may translate into precious metals and mining stock prices.

Correlation Matrix

The values of the correlation coefficients are basically unchanged from last week, so we will quote our previous comments - they are up-to-date.

Basically, the short-term numbers don't tell us much at this time when we look at them directly, but can tell us something if we look a bit beyond them.

The correlation between the USD Index and the precious metals sector is slightly positive in the 30-day column (and even moderately significant in the case of the mining stocks), which tells us that in the past 30 days PMs and the USD Index moved on average in a similar direction. However, this was the case when they both declined - and when USD moved higher (this week), metals and miners declined even more. This is a very bearish combination - whatever USD does, the precious metals sector seems to either decline modestly or strongly.

Overall, the implications for the precious metals sector are bearish.

Having discussed the bearish impact from the currency markets (actually, even more bearish than last week because of the proximity of the cyclical turning point in the USD Index), the question remains if anything changed in case of the gold market itself.

Not really. Generally, from the long-term perspective not much changed on the gold market. What we wrote in our previous article remains up-to-date as the breakdown below the rising long-term support/resistance line was not invalidated:

Gold didn't manage to successfully climb above the rising long-term support line (not to mention staying above this line), which triggered a sharp decline. With this downward move, the yellow metal not only declined below last week's low, but also slipped below the level of $1,200. These circumstances clearly show the weakness of the buyers and it seems that the previous 2013 low will be reached quite soon.

(...)

Please note that the exact target for gold is quite difficult to provide. In the cases of silver and mining stocks there are respectively: combinations of strong support levels, and a major support in the form of the 2008 low. In the case of gold, there are 4 support levels that could stop the decline and each of them is coincidentally located $50 below the previous one starting at $1,150: $1,150, $1,100, $1,050, and $1,000.

Summing up, looking at the current situation in both currencies, we are likely to see further deterioration in the Euro Index and improvement in the USD Index in the near future. As mentioned earlier in this section, the euro almost immediately invalidated both breakouts, which is a bearish signal. Additionally, the USD Index reversed course after a drop below the medium-term support lines (to be precise: similarly to what we saw last week, there was no true breakdown overall) and it seems that the bottom for this decline might already be in. On top of that, gold's lack of will to really (!) react to positive news, like the dollar's huge intra-day drop, is a bearish piece of information on its own and an indication that gold is likely to move lower in the short run - it seems that all it needs is a rally in the USD Index, which - as you can see above - will likely be seen shortly.

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. On behalf of the whole Sunshine Profits Team, I would also like to thank you for staying with us in 2013 and wish you a Happy and Prosperous 2014!

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

© 2005-2019 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