• 288 days Will The ECB Continue To Hike Rates?
  • 288 days Forbes: Aramco Remains Largest Company In The Middle East
  • 290 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 700 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 707 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 710 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

US Dollar Rebound Increases Near-Term Risk

Last week we noted that the odds favored more upside in precious metals before a larger correction would begin. While that view remains on track, we want to note the renewed strength in the US Dollar which could provide immediate resistance to higher levels in Gold and gold stocks.

The chart below plots the weekly candles for the US$ index and the net speculative position in the US$ index. The US$ index closed back above its 200-day moving average (97) and remains well above its 400-day (or 80-week moving average). The larger consolidation appears to be an ascending triangle which is a bullish continuation pattern. Upon breakout through 100, the pattern projects an upside target of 107. Moreover, although the US$ index is only a few points from major breakout territory its net speculative position (as of Tuesday) is the lowest in 18 months!

US Dollar Index Weekly Chart

The improving prognosis for the US$ index could be due to renewed weakness in the Yen. The chart below plots the Yen/US$ pair and Gold. Many other analysts long before me have noted the strong correlation between the two markets. The Yen/US$ pair may have formed a double top at 0.90. If that is the case then it has more downside potential in the short-term. Meanwhile, the question for Gold, which closed the week at $1220/oz is if it can hold support at $1180-$1200/oz.

Japanese Yen and Gold Daily Charts

Recent strength in the miners (GDXJ, GDX) has suggested Gold will hold above its key support at $1180-$1200/oz. However, there has been distribution in three of the past four trading days. If the miners can hold above support at point 1, (see the chart below) it would reinforce a bullish short-term outlook. In the case of a very strong US$ breakout and Gold losing $1200/oz then the miners could end up falling to point 2.

Market Vectors Gold Miners and Junior Gold Miners Daily Charts

The rebound in the US$ index coupled with the failure of Gold and gold miners at resistance over the past three days puts us on guard for the start of a larger retracement in precious metals. The potential double top in the Yen/US$ pair as well as the mini breakdowns in Silver and Platinum are also cause for concern. It is certainly possible that precious metals can rally temporarily with a strong US$ and reach the upside targets mentioned last week. However, a strong breakout in the US$ index above 100 could very well precipitate the next correction in Gold and gold stocks if it has not already started.

 


Consider learning more about our premium service including our favorite junior miners which we expect to outperform in 2016.

 

Back to homepage

Leave a comment

Leave a comment