Gold had a rough week. The short answer to the question of why gold is not shining is that the US dollar is shining instead. The long answer goes beyond the scope of this post, but it is certainly easy to explain with intermarket analysis and leading indicators.

Theoretically, there are plenty of reasons for gold to shine. It is both a fear asset and inflationary asset. In a world governed by fear (war, weather, uncertainty in markets, to name a few) and inflation, it would make so much sense for gold to trade around $2500. However, at the same time, we do know that the monetary policies around the world are all about tightening to get ‘out of hand’ inflation under control.

The million dollar question is, which of these conflicting trends is winning? The answer: none.

In our latest gold article 5 Must See Gold Price Charts As The Second Half Of 2022 Kicks Off, we stated that the invalidation level for the bullish thesis in gold remains at $1700. While the decline in gold over the last week was tough to stomach, we continued trading above our invalidation price, which is $1700.

Moreover, in our article Gold Price Outlook Following FOMC Rate Hike In June, we mentioned the importance of intermarket effects like bond yields and the euro. Bond yields seem to have topped and the euro might have bottomed, as per the weekly EUR/USD chart featured in Leading Indicator For Global Markets Setting A Secular Bottom.

In the meantime, the daily gold price chart shows that gold stopped falling right above the previous lows set in March, April, August, and September of last year. This is important because it happened in the week when the euro touched 7-year support.

So, if we read the chart to answer the question “which trend is winning,” we believe the chart is saying “none.” Presumably, the more accurate answer is “none yet,” but we need a few more weeks to understand if the US dollar is indeed topping and/or the euro is bottoming, and how the Fed will react to next week’s CPI data.

Even if we take the longest possible view, the quarterly chart on 50 years, we can observe a continued test of previous highs. What we also observe is the importance of the $1700 level.

We can easily see a giant cup-and-handle pattern on this longest-term chart (very bullish), or a topping pattern in the last 24 months (bearish). Neither of the two are confirmed. Gold is trendless and awaiting direction from other markets, mostly from the US dollar and the euro.

Note that we continue to believe that silver is a juicy long-term investment. The gold-to-silver ratio is now at a point where it has always found resistance, very often huge resistance, right before a really big move in the price of silver started.

Will this time be different?

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