Dollar’s and Gold’s Sentiment – What a Coherent Story!

Gold is closely watching what’s going on in the USD Index, so that’s what we’ll focus on today.

Tuesday’s move lower in the USDX corresponded to gold’s rally, and today’s (so far tiny) move higher caused gold to move lower.

However, since we know that a move higher is the most likely outcome from here, it’s clear that the opposite is likely for the precious metals sector. Naturally, the bullish outlook for the USD Index is based not just on the inverse head-and-shoulders bottom pattern that it completed recently, but also on many other factors. My previous comments on USD’s long-term picture remain up-to-date:

The all-important 61.8% Fibonacci retracement levels based on the 2022 top and the 2018 / 2020 lows were reached and the USDX reversed from them. At the same time, the USDX verified the breakout above its declining, medium-term support line.

Plus, the RSI indicator flashed a clear buy signal by moving below 30 and now back above it. We saw something similar in 2018 (especially that it was the second of two similar tops) and that was THE bottom. Lower USD Index values were never seen since that time.

What’s even more remarkable is that both bottoms – the current one and the 2018 one – formed when politicians (Mnuchin then, Trump now) said things that were particularly bearish for the USDX or at least that were viewed as such by the markets (the tariffs are fundamentally bullish for the USDX, even though markets’ emotional reaction was as if the opposite was the case). The latter (a price decline while the fundamentals improved) is a great reason to think that the USD Index is going to move higher in the medium term.

The short-term indications suggest that the bottom is already in and that the more visible rally is about to begin.

This, in turn, is likely to have a profoundly bearish impact on the precious metals sector and commodities. Since stocks are likely to decline as well, mining stocks and commodity stocks (like FCX) and silver (which moves like both: a precious metal, and a commodity) are likely to affected to a particularly significant extent. And we’re going to take advantage of it when it happens.

Also, have you noticed how everyone and their brother are bearish on the USD Index?

Quoting from our email inbox:

“Please see the attached link; (…) Note there are multiple main stream investment media outlets covering this topic.”

The title of the linked article is ‘Asian crisis in reverse’ as currencies soar against dollar.

This simply confirms how extremely negative the sentiment has become for the USD. We saw exactly the same thing at the 2018 bottom, and I even recall similar articles being posted then. As a reminder, the dollar plunged back then after Treasury Secretary Steven Mnuchin said its fluctuation doesn't concern him and that he actually welcomed a weaker dollar. Then almost everyone panicked and wrote how bearish the outlook for the USDX is. And that was THE bottom – lower prices were never seen since that time. In my view, we are in a very similar situation right now – the above article simply confirms how negative the sentiment has become. There’s plenty of people that can get back in, thus pushing the USD values higher.

Search Trends Show Gold Mania

While we’re at the sentiment analysis, please take a look how many people are searching online for the “gold price” phrase. (This means that people are interested in gold.) The searches for “gold IRA investment near me” are booming as well.

We’re after a huge, and very distinct peak in interest. People are still very interested in that – proving that the sentiment is still very strong.

And here’s what gold usually did after those peaks.

It usually started declines that lasted MONTHS.

Most interestingly, miners sometimes (2022, 2023) moved a bit higher just after the peak interest and then collapsed. In particular, the link to 2022 is notable.

Consequently, the current corrective upswing is not that surprising, and it’s definitely not bullish.

Besides, falling stocks are likely to put the end of miners’ temporary strength as well.

Triangle Reversal Confirmed

Stocks reversed in perfect tune with their triangle-vertex-based reversal. The corrective upswing on which we had profited earlier, is most likely over.

Based on that reversal AND the breakdown below the very short-term, rising, red support line (which was just verified), it seems that the move above the 61.8% Fibonacci retracement will be invalidated shortly. This, in turn, means that the stock market might have just ended its corrective upswing.

We know that this is the likely outcome ahead of FOMC – technicals usually lead fundamentals, even though most people don’t know that. Of course, there are ways to benefit from the incoming declines, but I’ll leave the specific details to my subscribers.

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