US Dollar & Gold Technical Analysis

The US dollar remains at a critical technical juncture. The currency typically has an overwhelming impact on gold prices over the short-term. So, we place our primary attention there this week. After seeming to break down during the overnight hours in Asia a week ago, the US dollar abruptly reversed and moved higher last week. The US dollar went up 0.8 points to close at 100.2 on the dollar index. The US dollar is whipsawing traders at present and is caught immediately in the crosshairs of a crucial technical battle. Despite the failure to follow-through in last week’s breakdown, the dollar remains within the zone of recent support. This may now act as resistance, beneath 100.5 on the index. This zone shows in black.  

Dollar Continues to Make Lower Lows

The critical point about the short-term technical picture is that the dollar has now put in three separate lower lows (99.5, 99.2, and 98.8). This is since the breakout from the 2015 – 2016 consolidation. The lows are not the sign of a market prepared to make another multi-year advance. The bids at the retest lows we observe (below 99.5) are not enthusiastic. Instead, they are fading as time progresses. In a strong breakout of a multi-year consolidation, we might indeed expect one or two retests of the former resistance zone. Following these retests, a market should move sharply higher to hit the consolidation target. (Which is 108 on the dollar index). We have seen no such strength in the dollar since its breakout. Instead, we have seen three retests. Each one is occurring lower than the prior.

Could the US Dollar Rally?

Say the dollar does somehow manage to rally at this juncture. Perhaps by some jawboning statement by the Federal Reserve about a “strong dollar policy." We would expect the US currency could stage a final marginal rally toward the 108 targets mentioned above. If this does materialize, we expect to see precious metals show relative strength instead of sell-off materially. Perhaps consolidating with slight downward bias – as the dollar makes its final advance. Essentially, the precious metals should anticipate that the dollar is in the final stages of its advance. This is whether or not the exact top print has already posted. In retrospect – this is exactly what gold and silver have done thus far during the past 15 months. Gold is up nearly $200 and silvers up $4.50. Despite the dollar at just shy of a 9-year high. We suspect buyers have entered the precious metals market ahead of time, knowing that the dollar was approaching an important multi-year top.

Short-Term Technical Considerations

The next few weeks continue to be critical to monitor for the dollar. On the chart above we can see that the US currency is now “sandwiched” between its rising (blue) trendline from the May 2016 low and its falling short-term trendline (teal) from the January high. Yet all the while sitting squarely within the 2015 – 2016 resistance zone (black double lines). This is a tight technical situation indeed.

Gold Analysis

Gold advanced nominally last week, rising $2.70 or 0.2% to close at $1,251 as of the final trade on the New York COMEX on Friday afternoon. Minor resistance ensued as anticipated below $1,265. The high trade for the week came in at $1,262. Minor support levels exist at $1,200 and $1,180.

The near-term technical situation remains largely unchanged from our most recent update. It is focused upon the resolution of the pennant formation (red highlight) visible on the chart above.

As this pattern is drawing closer to a resolution, we will begin to regularly track the precise figures. These would constitute a breakout in either direction. Those levels are:

Upper boundary breakout -- $1,290 and falling.

Lower boundary breakout -- $1,155 and rising.

Whichever of these boundaries breaks first, the resolution of this pattern will set the stage for the direction of the entire precious metals market for the subsequent 12-18 months. It will be an exciting remainder to 2017, to say the least!

Christopher Aaron, Bullion Exchanges Market Analyst

Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. The CIA is where he specialized in the creation and interpretation of pattern-of-life mapping. Technical analysis shares many similarities with mapping. They both base on observations of repeating and embedded patterns in human nature. His strategy of blending behavioral and technical analysis has helped him and his clients. It has helped to identify both long-term market cycles and short-term opportunities for profit. This article is a third-party analysis. It does not necessarily match the views of the Bullion Exchanges. Readers should not consider this as financial advice in any way.

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