Where Is Gold’s Rally In Response To Yesterday’s USD Weakness?

Yesterday, the USD Index moved substantially lower while precious metals barely yawned. Why is gold not rallying? What does the gold-USD link tell us now, in combination with latest developments throughout the PMs sector? Let’s examine these and many more clues together.

Almost nothing happened yesterday in gold and silver, while miners moved a bit lower. The latter is a bearish indication, but not the most important one that we saw. The key issue is that what happened in the gold-USD link showed that gold was previously not showing strength with regard to the US currency. Yesterday’s action confirmed our yesterday’s thoughts on that matter. We explained the reasoning behind the lack of decline in gold in light of USD’s rally in the following way:

One reason might be that gold is simply showing strength, as it doesn’t want to move lower – it’s waiting for factors on which it could rally. But we don’t think that this the correct interpretation. There are multiple long-term bearish factors that remain in place and thus it seems that there might be a different interpretation. And there is. Actually, there are two reasons due to which this might be the case.

First, gold is often reacting to major breakouts in the USD Index (and breakdowns), not necessarily to smaller moves that lead to the breakouts (breakdowns). The investors simply doubt that the USD strength will be upheld and don’t sell their gold based on the above.

(…)

Second reason may be the very recent discrepancy between the triangle-vertex-based reversals in the USD Index and the precious metals market. The USDX reversal took place earlier, so it may still be the case that the recent resilience of the precious metals sector is a way in which the natural delay takes place.

Consequently, the recent “strength” in gold may be no real strength at all.

Let’s see what happened in the USD Index yesterday:

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