USDX: Gold Can’t Wait To Fall - Even Without USDX's Help

Gold started its decline without anyone’s assistance. And when the USDX takes off, that downhill tumble can only increase. The USDX declines and the precious metals sit by idly, twiddling their thumbs. If they had the strength that’s being talked about, they should be soaring by now, or getting ready to. So, what’s their problem?

In the previous days, I discussed the signals coming from the precious metals market, as they kept on emerging, and we just received yet another round of indications. And yes, they also confirm the bearish outlook for the following weeks - or a few months. Let’s start by looking at the USD Index.

On the above chart you can see that this week, the USD Index broke to new monthly lows. And you can also see that gold didn’t move to a new monthly high. In fact, it was not even close to doing so – it just closed below $1,770. This is a clearly bearish sign for gold. And what about the USD Index?

It’s making a second attempt to break below its 61.8% Fibonacci retracement level. Will it be successful? It might be, but another support level is just around the corner. Perhaps the proximity to the rising support line based on the January and February lows was actually enough to trigger the rebound yesterday.

In this case, the bottom in the USDX is already in. But, we’ll know with much greater certainty when the USDX finally breaks above the declining resistance line and then confirms this breakout.

On the four-hour USD Index chart above we see that the previous short-term breakout was invalidated, which triggered a substantial sell-off, but whatever was likely to happen based on this invalidation seems to have already happened. And it seems that we’re about to see another attempt to break higher.

Will the USD Index be successful this time? That’s quite likely, but that’s not the most important thing from the precious metals investors’ and traders’ point of view.

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Jared Green 2 weeks ago Member's comment

Inflation and dollar weakness should push gold prices up but I was shown a gold price forecast of 1400.

Przemyslaw Radomski, CFA 2 weeks ago Author's comment

Thanks for the comment. Inflation is one thing, bond yields is another. Thus, dollar doesn't have to decline now. In fact, the opposite seems more likely to me. I think that gold will move well beyond its 2020 highs, but not before declining (likely in the following few months).

Almoni33 2 weeks ago Member's comment

I am not sure you are right and gold will fall below the price of 1600 - nevertheless I will buy there with great joy

Almoni33 2 weeks ago Member's comment

Thank you for your article

Przemyslaw Radomski, CFA 2 weeks ago Author's comment

Thank you, I'm happy that you enjoyed reading it.

Almoni33 2 weeks ago Member's comment

Unlike dozens of authors on https://seekingalpha.com and others, you have shown not only charts but also target levels, which is especially significant. Yes I think you were wrong and we will not see gold at 1400 $ but more importantly you were not afraid to show your trade view

Przemyslaw Radomski, CFA 2 weeks ago Author's comment

I'm just not that good at "being afraid" :) Thank you. The next several months might be very interesting in the PMs, that's for sure. The long-term fundamentals are ridiculously bullish, and yet, it seems to me that the gold's going to initially (!) react to strength in the USDX and (eventually) declining stock market by declining significantly. We'll see. Have a great weekend!