Gold And The US Dollar

Gold

We were anticipating a modest one or two week correction prior to the resumption of the short-term upward trend, but all we got was a two-day pullback. The gold-market correction that appeared to get underway during the first half of last week was cut short by Friday's downside breakout in the Dollar Index.

This means that the gold market has stayed short-term "overbought" and is still vulnerable, but what happens to gold over the next couple of weeks will be mostly determined by what happens in the currency market. In particular, we think that if the Dollar Index follows through on last Friday's downside breakout, then the US$ gold price will move quickly up to the vicinity of the 2016 high.

Further to comments in the last two TSI reports, gold's 20-day MA, which will move into the low-$1300s this week, can now be used for risk management purposes. Specifically, it will be reasonable to assume that the upward trend is intact until there is a daily close below the 20-day MA.

The fundamental backdrop (as indicated by our Gold True Fundamentals Model - GTFM) shifted from slightly gold-bullish to slightly gold-bearish last week. It remains delicately balanced, though, and vulnerable to being "whipsawed" in response to minor shifts in interest rates.

However, that the GTFM has not moved decisively into bullish territory over the past several weeks is consistent with the price action. The US$ gold price is in a strong short-term upward trend, but taking a broader view of gold's performance leads to the conclusion that what we have seen to date is mostly the offsetting of US$ weakness as opposed to genuine gold strength. This is evidenced by the following two charts, the first of which shows the gold price in euro terms and the second of which shows the gold/SPX ratio.

Platinum

Platinum has channel resistance and "round number" resistance at $1000. Above that there is important lateral resistance at $1025-$1050.

It is currently short-term "overbought" and testing the lower of the aforementioned resistance areas. We expect a multi-week price peak at around this level or following a near-term spike to $1025-$1050.

Gold Stocks

Current Market Situation

A week ago we wrote to expect a 1-2 week correction in the gold-mining sector that would take the HUI down to the vicinity of its 50-day MA. Then, in last week's Interim Update we wrote that a correction may have already come and gone, with Tuesday's touch of lateral support at 191 marking the end. However, at that time there was still a chance of some additional corrective activity incorporating a test of the 50-day MA.

Due to Friday's rise to a new 2-month high we now know that a minor correction did, indeed, end last Tuesday.

With regard to the coming week we have no expectations other than we don't expect the HUI to trade below last week's low. With regard to the next month or so, a test of resistance at 220 is likely. The 220 level acted as a ceiling throughout last year, so how the HUI performs when it reaches 220 will be informative.

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This article is the collaboration of Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold, and reflects the thinking that has helped make them successful gold investors. Rudi is the current Chairman and CEO of Seabridge and Jim is one of its largest shareholders. Disclaimer: The authors are not registered or accredited as investment advisors. Information contained herein has been obtained from sources believed reliable but is not necessarily complete and accuracy is not guaranteed. Any securities mentioned on this site are not to be construed as investment or trading recommendations specifically for you. You must consult your own advisor for investment or trading advice. This article is for informational purposes only.

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