Close X Cookies are necessary for the proper functioning of 24hGold.com. By continuing your navigation on our website, you are accepting the use of cookies.
To learn more about cookies ...
EnglishFrench
Gold & Silver Prices in

Will the Breakout in the USD Index Hurt Gold?

IMG Auteur
Published : May 04th, 2013
900 words - Reading time : 2 - 3 minutes
( 0 vote, 0/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...
Category : Technical Analysis

We haven’t touched on currencies for quite some time (our latest essay was dedicated entirely to gold: Gold Price in May 2013) now but last time we did, we mentioned the long-term breakout in the USD Index, which at that time was starting to take shape, but as the time wore on it became more and more significant. This is why in today’s essay we’ll focus mostly on the U.S. currency, review its current technical situation and its implications for gold and silver. Let us then jump straight into the chart analysis – we’ll start with the very long-term chart where the breakout is most clearly visible (charts courtesy by http://stockcharts.com.)

24hGold - Will the Breakout in...

The index has actually confirmed a breakout above the very long-term resistance line. It has closed above it now for three consecutive months (yes, months). While a correction to the 80 level is still possible in the short term, an eventual move to the upside is now more likely than not. The closest target level seems to be slightly above 85 and although the 90 level could be in the cards as well, for now, we will focus on the first target level at this time.

The situation in the United States has not improved dramatically and the value of the dollar will have to go down eventually because of the massive amounts thereof that were created in the recent months and years. However, please remember that the USD Index is a weighted average of currency exchange rates, so if other currencies depreciate faster relative to tangible assets such as gold, the USD Index could actually rally. Another possibility is if the US situation is bad but it is worse everywhere else, the index could also rally. Anyway, the above chart suggests the USD index will move higher in the weeks ahead, though not necessarily immediately.

Let us move on to the medium term now.

24hGold - Will the Breakout in...

In this chart, the picture is not as clear. The bearish head-and-shoulders formation could still be completed here, but the index would need to move below 79 and then hold this breakdown. If it moves above 84, the bearish pattern would be invalidated. Since the long-term picture is more important and carries greater weight than the medium and short-term outlooks, it is more probable that a rally will be seen, although this may not happen right away.

Finally, let’s zoom in even further and see how the short-term situation looks like.

24hGold - Will the Breakout in...

In the short-term USD Index chart, we see that the index declined immediately after the cyclical turning point. A sharp move lower has been seen over the past few days, though this did reverse on an intra-day basis on Thursday (perhaps forex traders acted on the bullish 3-month confirmation of the long-term breakout). This could in fact be a reversal, as moves to the upside appear possible now. It is, however, a bit unclear at this time. What should have happened due to the bearish impact of the cyclical turning point has probably already been seen. All-in-all, the situation is unclear for the short term.

24hGold - Will the Breakout in...

In the long-term Euro Index chart, we see that the index bottomed within our target area and then moved higher. What’s ahead for the Euro Index is a bit unclear right now. An analogy to previous patterns suggests a move to the upside here.

With respect to gold, previous similar Euro Index trading patterns (such as in late 2010) coincided with gold moving lower initially and then rallying strongly (note the decline in late 2010 and early 2011). It seems that gold could once again move lower before rallying significantly.

Now, let’s take a look at the intermarket correlations to see how the situation in currencies may translate into the precious metals market.

24hGold - Will the Breakout in...

The Correlation Matrix is a tool which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector, (namely: gold correlations and silver correlations). The short-term impact on the precious metals by other markets has been very unclear. On a medium-term basis, the impact from the currency markets is negative. The final bottom for gold, silver and the mining stocks may very well be ahead. In the long run, the effect of these other markets is close to zero, and we expect the secular bull market for precious metals to continue even though the rally may not be seen right away.

Summing up, the long-term outlook for the USD Index is now bullish, and this could damage the precious metals markets, at least temporarily. The very long-term correlations between the dollar and the precious metals have been pretty non-existent. A medium-term impact will likely be seen however if the USD Index rallies (expect “there was no bull market in gold, only the bear market in the dollar which just ended” and similar comments – look at the non-USD gold chart for proof that there was much more to gold’s rally than dollar’s decline). The metals will probably respond negatively at first, and then go along with their main secular trend, which is to the upside.

Thank you for reading. Have a great weekend and profitable week!

Sincerely,
Przemyslaw Radomski, CFA

PS. Our subscribers have been profiting during these turbulent times and are profiting on today's decline as well. We encourage you to join them and get to know our detailed downside targets and trading plan.


Companies Mentionned : Metals X |
<< Previous article
Rate :Average :0 (0 vote)
>> Next article
Przemyslaw Radomski is the founder, owner and the main editor of www.SunshineProfits.com. Being passionately curious about the market’s behavior he uses his statistical and financial background to question the common views and profit on the misconceptions. “Don’t fight the emotionality on the market – take advantage of it!” is one of his favorite mottos. His time is divided mainly to analyzing various markets with emphasis on the precious metals, managing his own portfolio, writing commentaries, essays and developing financial software. Most of the time he’s got left is spent on reading everything he can about the markets, psychology, philosophy and statistics. Mr. Radomski has started investigating the markets for his private use well before starting his professional career. He used to work as an informatics consultant, but this time-consuming profession left him little time for his true passion – the interdisciplinary market analysis. Establishing www.SunshineProfits.com gave him the opportunity to put his thoughts, ideas, and experience into form available to other investors.
WebsiteSubscribe to his services
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
China is about to overthrow Lond...
28 Febneville
This a good slap in the face for the downright crooked bullion banks,traders that have been front running ie algorythm trading etc It had to ta...
A Salvo in the Battle for the Go...
27 Febovertheedge
I would argue that the devil is in the details, i.e. the definition of money. What the people of the US are using is currency. Currency bei...
A Salvo in the Battle for the Go...
26 FebFrankinca1
Sort of written for a PHD in economics, which gold believers (myself) are not often that well educated, have difficulty following. The definition o...
A Salvo in the Battle for the Go...
26 Feb07788525833
The dollar has a monopoly over all other types of money which is rammed down peoples throats by gun and drones , any one wanting to change this...
In Search of the Magic Wand: Car...
25 FebDoom
Yes, stay away from University of Phoenix, a school with a 9% graduation rate, that only gets students because it spends $200,000 a day on Google a...
Emails From Kiev: Free Speech Va...
25 Febovertheedge
"The problem is, the asshats associated with Poroshenko are even worse than he is." I'm assuming you mean the predators in the US White Ho...
The Bull Case For Gold This Year...
25 Febdepourcq1
You talked about all the wrong reasons that gold will rise or fall, their is only one that everyone should know. The US has a debt of 18.134 trilli...
The Bull Case For Gold This Year...
25 Febneville
The fact that you are very lowly rated might be one of two things .1.You have been playing this card to often (Bear Joker) 2,The other is that you ...
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Mining Company News
Marathon GoldMOZ.TO
Hits 3.02 g/t Au over 32.9 meters (TT) in Step-Out Drilling, Valentine Gold Camp, Newfoundlan
CA$ 0.30+10.91%Trend Power :
Corporate news
Chalice Diamond(Gems)COD.V
Sulliden Mining Capital to acquire Coastal Gold, an Advanced Gold Project in Newfoundland
CA$ 0.02+0.00%Trend Power :
Corporate news
Tinka Resources(Ag)TK.V
Announces AGM Results
CA$ 0.28+1.85%Trend Power :
Corporate news
Silver Standard(Ag-Au-Cu)SSO.TO
Early Glance: Silver companies
CA$ 6.57+0.00%Trend Power :
Corporate news
Pan American Silver(Ag-Au-Cu)PAAS
Early Glance: Silver companies
US$ 9.73+0.52%Trend Power :
Corporate news
Gold Fields(Cu-Ni-Mo)GFI
Early Glance: Gold companies
US$ 4.54-2.37%Trend Power :
Corporate news
Randgold Res.(Au)GOLD
- Total Voting Rights
US$ 78.79-0.51%Trend Power :
Corporate news
Continental Precious Min.(Ag-Au-Co)CZQ.TO
Engages Golder Associates for the Next Step in the Development of the Viken Project
CA$ 0.56+0.00%Trend Power :
Corporate news
Beaufield Res.(Ag-Au-Ni)BFD.V
Reports Annual General Meeting Results
CA$ 0.04+0.00%Trend Power :
Corporate news
Probe Mines(Ag-Au-Cu)PRB.V
Leading Independent Advisory Firms ISS and Glass Lewis Recommend Shareholders of Probe Mines
CA$ 4.86-1.62%Trend Power :
Corporate news
Comments closed
Subscribe to 24hGold’s daily market briefing
  • Prices and data of precious metals in 119 currencies and world mining companies
  • Daily analysis of the economy, markets and more
  • Free, daily and indispensable
Stay informed, subscribe now !
* Your email will never be shared.