US Dollar: Big Test Ahead In September

London (Sept 3)  The precious metals complex last week was not able to add to the gains of the previous week. Silver especially is very close to its August lows, so traders should not be surprised if the white metal registers a lower low this week. Furthermore, the mining complex (GDX) has been in a steep downtrend since last Tuesday (August 28th), so a lower low may be on the cards here also.

We actually got stopped out of our Newmont (NEM) trade last week and will look to re-enter if we get another possible setup shortly. We still maintain that gold in all likelihood printed a daily and intermediate cycle low on the 16th of August. Why? Because the yellow metal was well beyond its timing band for a daily and intermediate cycle low. Further confirmation would be a rally past the $1,220 an ounce mark, which would confirm a weekly swing low.

To get to these types of levels, though, trading in the US dollar will be key. One feels that gold needs the greenback to start selling off in earnest in order to see a significant intermediate advance. Here is how we see the dollar shaping up at present from a cycle standpoint.

We prefer to analyse cycle counts by using a bottom-up approach. This means we start off with the daily cycles and work our way up to weekly and then yearly cycles (measured monthly). From a weekly standpoint, the dollar seems to have a similar cycle count to that of US stocks as both printed hard intermediate bottoms in February of this year. We can confirm this by the heavy oversold conditions that the dollar witnessed in February along with the ultra depressed readings we had at the time.

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