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Do You Want To Know Where Gold Is Going?

It is clear that the recently on & off inverse correlation between the US Dollar and gold prices has once again returned, with a near perfect inverse correlation lately as the dollar & gold react to any economic releases that could impact the next FOMC rate decision. Therefore, if you want to know where gold prices are headed, then all you have to do is figure out where the US Dollar is headed. This 5-minute period chart plots GLD (gold ETP) against UUP (US Dollar ETP).

GLD vs UUP Sept 6th

GLD vs UUP Sept 6th

 

Figuring out where the Greenback is heading is easier said than done, of course, especially lately as the market & currency traders hang on every single word uttered by any Fed official and the dollar's reaction to the most recent economic reports, such as the Employment Situation release on Friday & today's ISM Non-Manufacturing Index release, both of which came in below expectations, triggered an immediate & very sharp drop in the dollar as the odds for a rate cut at next FOMC meeting, or at least the perception of those odds via market participants, were immediately reduced.

With the recent tight inverse correlation between the $USD and gold prices as well as the fact that the US Dollar is clearly & sharply reacting to anything that can possibly influence the next FOMC decision made clear in the charts above, the take-away would be for those trading gold and/or the mining stocks, to keep one eye on the currency charts at all times. With the Euro & the Yen collectively accounting for a weighting of over 71% in the US Dollar index, you really only need to figure out where the dollar is headed against those two major currencies to figure out where the US Dollar index ($DXY/$USD) is headed and if you get that call right, you have a good shot of getting the next major trend in gold correct as long as the inverse relationship between the two remains.

While it might be next to impossible to predict the very near-term price direction in the US Dollar, as that has most recent been driven by economic releases that can go either way, I do believe that the intermediate-term (weeks to months) outlook for the dollar can be ascertained from the charts with a fairly high degree of confidence. Although the US Dollar may (or may not) need one more thrust back down against the Japanese Yen within this bullish falling wedge pattern, it appears very likely to me that an lasting trend reversal & rally in the USD/JPY will occur soon.

USD-JPY daily Sept 6th

USD-JPY daily Sept 6th

While this sloppy, non-symmetrical triangle pattern could break either way, based on the clearly bearish intermediate-term posture of the $USD vs. the Yen, I favor a downside break & move lower in the coming months (i.e. Euro down/Dollar up). Should both scenarios occur (US Dollar rallies against the Yen & Euro), that would likely provide head-winds for gold as a stronger dollar buys fewer ounces of gold (putting supply/demand dynamics & other variables aside), thereby putting downward pressure on gold prices.

EUR-USD daily Sept 6th

EUR-USD daily Sept 6th

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Sep 6, 2016 11:43am|Categories: Forex (Currencies), Gold & Commodities|Tags: , , , , , , , , |12 Comments

12 Comments

  1. riverbirch September 6, 2016 12:19 pm at 12:19 pm

    IN LOOKING AT THE DOLLAR WEEKLY CHART IT APPEARS THE PMO HAS BOTTOMED AND IN AN UPTREND WHILE PRICE IS HOLDING UPTREND SUPPORT-JUST A LONGER LOOK.

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  2. Ruben September 6, 2016 12:28 pm at 12:28 pm

    Randy,
    Hope all is well,
    I am not in GDX or NUGT but planning to come in as a SHORT your thoughts.
    Are you still staying the course with NUGT/GDX short? Where would you put the stops on GDX or at what level would you add if you are planning to.
    You did mention in the video last night that GLD might go to $127.90 today. If it closes above where it is now $128.17 what is the next level we should watch for.
    ISM number was not that great. We have Japan reporting their GDP and I believe ECB rate. Should we just stay course on the trade or add.
    Thank you

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    • rsotc September 6, 2016 12:52 pm at 12:52 pm

      If this is just a B wave up in an ABC or some other type of deeper correction yet to come in the miners, I would think that GDX shouldn’t go much above the R3 zone that I covered on the 60-minute chart in the video (29ish-29.40ish level). A stop slightly above that level seems the most objective place for a potential short trade on GDX or NUGT that could last for several weeks or even months.
      I’ve also marked up the charts of the top components on GDX & nearly all look to have significant resistance around 3-4% above current levels (most closer to the 3% mark). I like to closely watch the top components of GDX in order to align my entry & exit levels when trading the miners.
      GLD next R is 128.57ish then 129.30.
      EUR/USD is trading at the 1.12480ish R level now with downtrend line R somewhat above if this R level happens to be taken out.
      As far as whether to hold, fold or add to your GDX trade, that all depends on your average cost as well as where you think it might be headed if there is more downside to coming once this rally ends. I have room to add but I’m not doing so right now since the miners put in that recent 60-minute bullish divergent low & so far, the recent rally isn’t showing the slightly signs of slowing down. However, that can change on a dime & I suspect that today, despite the fact it appears that way, will not prove to be a trend day (i.e- a day where prices move higher throughout the day, closing near the highs) as I have GDX at my R2 (60-minute chart) level now with the EUR/USD at resistance & think that we could likely get a reversal from current levels. However, until & unless I see some pretty solid evidence that this rally may have run its course, such as some type of reversal stick or pattern on the intraday charts, I’m just going to sit tight & watch.

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  3. snp September 6, 2016 12:30 pm at 12:30 pm

    its clear that the coyote will follow the jackrabbit. so all you have to do is figure out where the jackrabbit is going. easy peasy!

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  4. snp September 6, 2016 12:31 pm at 12:31 pm

    maybe better advice is take profits while you have them and get out of the way of the bus that is headed right at you. sheesh.

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  5. jameske September 6, 2016 1:01 pm at 1:01 pm

    Interesting to see what happens. Gary Savage has the dollar falling into an Intermediate Cycle Low in October, so he expects gold to go up in September. He expects the dollar will be below 92 and perhaps under 90 which means gold maybe breaking 1400. When you follow two people that appear to be saying the opposite things, then I guess that makes me SNP’s rabbit in the headlights. Maybe it is time to make a burrow and make little rabbits 😀

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  6. pkm48193 September 6, 2016 1:43 pm at 1:43 pm

    It’s not a bus. It’s a TRAIN!

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    • rsotc September 6, 2016 2:27 pm at 2:27 pm

      As a crowded trade, if gold is a train, then it runs a high risk of being derailed as all crowded trades end up once too many passengers have piled on board:

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  7. snp September 6, 2016 2:34 pm at 2:34 pm

    gary savage went long all miner and gold this AM. crazy timing, but the cycle low is in. still think its overbought tho for now. no question the vertical move is not a very pretty retrace if one is bearish.

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  8. snp September 7, 2016 12:12 am at 12:12 am

    a burrito bet says you get stopped out over 30.95

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    • rsotc September 7, 2016 3:17 pm at 3:17 pm

      It very well could be months before GDX sees 30.95 again, especially if that potential H&S on the daily continues to develop. H&S patterns with downward sloping necklines, such as the one on that (still potential) pattern are more bearish than horizontal or upwards sloping NL’s. Not sure what a ‘burrito’ bet is but sounds good. In fact, I’m going to go grab lunch right now.

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  9. snp September 7, 2016 4:42 pm at 4:42 pm

    a burrito bet is the winner receives from the loser a coupon for a burrito at their fav. burrito shop. I say gdx can reach 32.50-34 before topping and the bet is your stop.

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