Gold vs. Dollar?
Since the US presidential election, the US dollar has headed straight up … and gold has headed straight down. When will the pain for gold investors finally end? I think sooner rather than later, though a lot depends on the fate of the US dollar.
Since late spring / early summer, when the US presidential campaign really began heating up, the negative correlation between gold and the USD has been startling. In fact, the negative correlation dates all the way back to mid-2015.
A year ago, gold was at its lowest point of the year, trading in the $1060 range. It moved higher in the first half of the year and topped at the $1360 level in the first week of July.
On the other hand, the US Dollar was trading near a high one year ago and moved down to the 93 level at the end of June. Since then, it has been steadily moving higher, culminated by the spike after the Trump election in November.
The SSI chart for both gold and the USD tell the same story as well.
Gold had a great run for the first half of 2016, but, as we feared, has been suffering since July.
The USD, as we predicted, bottomed over the summer and has been on an absolute tear this fall. It triggered an SSI entry signal in November right after Trump’s election.
The volume-at-price (VAP) charts that we like to look at for support and resistance don’t offer much encouragement either, I’m afraid.
Gold moved lower underneath an area of support in the $1150 range and now looks to have a downward momentum to the $1070 level.
On the other hand, the dollar is in no-man’s land after its spectacular rise. There is no resistance in place at this time to stop its move higher.
That’s the bad news for gold investors looking for some dollar downside and gold upside. Looking out a bit further into the future, however, it’s not all doom and gloom. In fact, there are some reasons to be seriously optimistic.
The commercial traders of the dollar seem to be locking in prices as the Commitment of Traders report shows bearish holdings by the hedgers on increasing open interest.
Look at what happened in late 2014 and early 2015 as the traders held large bearish positions at the same time that open interest was increasing. This pattern seems to be repeating now.
My time-cycles forecast for the dollar remains bullish, into the early part of 2017 but strongly suggests that we should see a top in the dollar rally in the next 30 to 45 days.
As for gold itself, I’m waiting for the commercials to build a bigger position before I get super-bullish but the long-term cycle in gold is definitely heading up, and commercial players have begun accumulating a new position.
When gold does bottom and finally start its long awaited ascent, …I think that it’s going to be huge.
May your holidays be merry and bright!
