The U.S. Dollar Rocket Is Ready To Take Off But Gold Doesn’t Fit Aboard
2022.04.01 10:23
Gold and the USD act as if they are swinging on a seesaw. However, the apparent idyll cannot last forever – one of the assets will have to be grounded.
The back-and-forth movement in both gold and miners continues. However, as GDXJ keeps trading below its rising support line, the breakout below it becomes confirmed, and the movements that we saw at the same time in gold and the USD Index suggest that the former is ready to slide once the latter rallies. Let’s take a closer look, starting with the GDXJ.
GDXJ 240-Min Chart
Yesterday’s move in the ETF was rather insignificant, and that’s precisely what makes it… significant.
What I mean is that insignificant moves after a breakdown are a perfect way for the market to take a breather before declining further. In other words, the previous breakdown makes yesterday’s irrelevant price action relevant and bearish.
Consequently, my comments yesterday on the above chart remain up-to-date:
USD Daily Chart
What happened after we posted the above?
The USD Index had declined, and gold had rallied (yesterday), and then (today) the USD Index moved back up by just a little while gold declined strongly.
USD Index Chart
Gold Chart
Gold is once again in a situation where it magnifies the USD’s bearish indications while largely ignoring the USD’s bullish indications.
This is a perfectly bearish sign for the short term, because it means that if the USD Index moves back and forth, then gold will most likely continue its downtrend, declining when the USD is up, and pausing when it’s down.
However, the USD Index is not likely to continue to move back and forth for long – quite the opposite. The USD Index has just verified its breakout above the mid-2020 high for the third time (without moving below it; the strong support held!), which means that it’s now very likely that it will simply continue its uptrend.
Based on how gold is now reacting to USDX’s movement, the uptrend in the USD Index would be likely to trigger significant declines in gold. This would be likely to translate into lower silver and mining stock prices.
All in all, technicals favor a decline in the precious metals sector sooner rather than later.
