Gold And The US Dollar

September 26, 2017
Technical Analyst & Author

The last Gold Market update, posted at its recent peak on the 11th, called for a significant reaction back by gold, and that is exactly what has since happened. It also called for a rally in the dollar, which hasn't happened—yet, but as we will see in this update, it looks likely to happen soon, and given that gold's COTs have barely eased on the current reaction to date, it therefore seems likely that gold will lose more ground on a dollar rally.

On gold's 2-year chart we can see that it was at a good point to reverse to the downside early in the month as it had risen into the zone of substantial resistance in the vicinity of its mid-2016 peak. A potential channel is shown, and if it should drop back to the lower boundary of this channel, as looks likely given the immediate outlook for the dollar, it would drop back to about $1250, and COTs suggest it could go lower still.

The latest COT chart shows that, as mentioned above, positions have barely eased on the reaction of the past two weeks—the Commercials still hold a high short position and the Large Specs a high long position. These positions will probably need to be "wrung out" before gold can resume the upward path, especially as the technical outlook for the dollar is for a significant rally over the short to medium term.

The key charts for us to consider in relation to gold are, of course, those for the dollar, now more than ever. On the 6-month chart for the dollar index we can see that it has become more "agitated" over the past week or so, with a number of larger white candles appearing on its chart. This is bullish, especially as the lows early this month were not at all confirmed by momentum—the MACD shows downside momentum dropping out at a time when the dollar and its 50-day moving average have opened up a large gap with the 200-day moving average, and at a time when the dollar has arrived at support at the lower boundary of its large Broadening Top formation—it's time for a last gasp "swan song" rally before the dollar makes a graceless exit from the stage through the trapdoor—that's when gold prices and silver will take off.

The dollar's arrival at the lower boundary of its large Broadening Formation is shown to advantage on the 4-year dollar index chart below. This looks set to generate the proverbial "dead cat" bounce.

Underlining the high probability of an imminent dollar rally is the latest dollar Hedgers chart, which shows that large Commercial Hedgers, who are normally right, have progressively unloaded almost all of their short positions as the dollar has sunk lower and lower, to the point where they are now almost non-existent. Whenever this has happened in the past, as this chart makes plain, a significant dollar rally has followed. We should therefore be on the lookout for a substantial dollar rally soon—it hasn't started yet, but looks imminent.

Chart courtesy of www.sentimentrader.com

Although a dollar rally is expected to start soon, it is important to note that this will be just a "dead cat" bounce—it is not expected to get very far before it turns lower again, and then heads for a breakdown from the Broadening Top pattern leading to a severe decline, as the process of global de-dollarization being spearheaded by China and Russia for obvious reasons gathers pace, so that one day the dollar will be "just another currency" and it will be interesting to observe how the United States adjusts to the new reality of having to "live within its means" instead of on the labor of the rest of the world by swapping piles of intrinsically worthless paper (dollars and Treasuries) for goods and services that are the product of REAL WORK.

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Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years' experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.

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Above article was first posted on September 24, 2017 at https://www.clivemaund.com

Clive Maund

Clive P. Maund’s interest in markets started when, as an aimless youth searching for direction in his mid-20’s, he inherited some money. Unfortunately it was not enough to live a utopian lifestyle as a playboy or retire very young. Therefore on the advice of his brother, he bought a load of British Petroleum stock, which promptly went up 20% in the space of a few weeks. Clive sold them at the top…which really fired his imagination. The prospect of being able to buy securities and sell them later at a higher price, and make money for doing little or no work was most attractive – and so the quest began, especially as he had been further stoked up by watching from the sidelines with a mixture of fascination and envy as fortunes were made in the roaring gold and silver bull market of the late 70’s.

Clive furthered his education in Technical Analysis or charting by ordering various good books from the US and by applying what he learned at work on an everyday basis. He also obtained the UK Society of Technical Analysts’ Diploma.

The years following 2005 saw the boom phase of the Gold and Silver bull market, until they peaked in late 2011. While there is ongoing debate about whether that was the final high, it is not believed to be because of the continuing global debasement of fiat currency. The bear market since 2011 is viewed as being very similar to the 2-year reaction in the mid-70’s, which was preceded by a powerful advance and was followed by a gigantic parabolic price ramp. Moreover, Precious Metals should come back into their own when the various asset bubbles elsewhere burst, which looks set to happen anytime soon.

Visit Clive at his website: CliveMaund.com

Due primarily to the California Gold Rush, San Francisco’s population exploded from 1,000 to 100,000 in only two years.

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