Watch Out As Gold Appears To Be Staging New Momentum Base In Preparation For A Big Upside Move

Although Gold has continued to drift downward after reaching a peak near $2089.20 in early August 2020, our Custom Gold Inverse Trending Index suggests this weakness has actually built a very strong momentum base – preparing for a big move higher.

The relationship of Gold to the US Dollar is a fairly widely known correlation. When the US Dollar is weaker, Gold tends to rally. When the US Dollar is stronger, Gold tends to be weaker. Yet the combination of EURUSD and JPYUSD (plotted in INVERSE) in combination to the trend of the US Dollar related to Gold is difficult to ignore.Let’s explore this unique correlation a bit deeper.

EXPLORING CURRENCY/GOLD CORRELATIONS – ARE WE STARTING A NEW 7 YEAR GOLD RALLY?

The Weekly Gold vs Currencies Chart, below, may seem a bit complicated, so let me try to explain what I’m trying to illustrate. First, the CYAN colored line is the US Dollar Index.What I want to share with you is the US Dollar enters periods of strength or weakness for extended periods of time.You can see the US Dollar Index weakening near the left edge of this chart near 2006-07, then strengthening again after a moderate bottom near 2013~14, then starting to weaken again after the recent peak in March 2020.These roughly 7-year cycles act as major US Dollar Index bias trends.We are current within a weakening US Dollar Index bias based on our research.

Second, the 85 to 86 level on the US Dollar appears to be a moderately critical support level.When the US Dollar falls below this level, entering a period of broad overall weakness, Gold tends to react to US Dollar strength more aggressively than when the US Dollar stays above the 85~86 level.A good example of this can be seen by the 2019 to 2020 rally in Gold while the US Dollar Index traded moderately higher while above the 86 level.

Next, when the EURUSD and JPYUSD move into a position of strength compared to the US Dollar, Gold tends to trend generally higher as the US Dollar weakness is persistent in driving traders/investors into safe-havens. The 0.65 level, the BLUE line, on this chart highlights the combined threshold for the US Dollar Index and the EURUSD/JPYUSD trend bias.

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