The US Dollar Index Is Overbought And Gold Is Now Oversold

The US dollar has been rallying now for about four weeks after reaching an oversold condition on its technical oscillator indicators such as the RSI. Now, though, the RSI is above 70 to give an overbought reading as you can see from this chart. This rally has taken the US dollar index back up into resistance at its 150 and 200-day moving averages.

You can see how deeply the RSI got oversold around New Years and last year in August. This last oversold reading was not as extreme as those last two were, but did result in a quick bounce-back rally. Now it’s overbought.

That doesn’t mean that the US dollar index is going to go straight back down tomorrow or next week, but it does mean that from here the upside is very limited. You’re looking at a potential move up to $93.50. But what is important is that the dollar is now likely to drift and peak and roll over in the coming weeks. BTW – TLT and LQD are now hitting the overbought reading too – making me think they will just drift around for a few weeks and maybe start to go back down in August or so.

The price of gold trades opposite to the US Dollar index and got overbought in terms of RSI as the US dollar got oversold. Gold then dipped.

The RSI for gold went below 30 on Tuesday. It didn’t get as low as did in March, but it is low enough to tell us that the downside for gold is limited from here. It’s possible gold dips down to $1750, but the important thing is that gold is now in the process of making a new bottom. It could take a few weeks for it to base before it goes up, but that process is now starting to happen. It could rally up towards $1825 from here and then restest the recent low, or just float in an even more narrow range and then turn up.

Yesterday, gold and mining stocks gapped up, but that gap up got sold. My favorite indicator to actually time a new uptrend is the GDX/GLD ratio, and it has not given a buy signal yet. But I’m still watching it closely. Here is how it looks now on an hourly chart.

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