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Dollar Continues Bull Market: Bullish for Yields but Bearish for Gold

The U.S. dollar is back in a bull market. After a long consolidation in the last 24 months, the dollar broke out in November only to come back and test its breakout level in February of this year.

InvestingHaven’s research team wrote in December: 5 Reasons Why The US Dollar Long Term Chart Is Bullish. That was another spot-on call, as it appears now that the dollar is going higher.

What does that mean to other asset classes? According to the current primary trend, it implies that a rising dollar would be good for yields but bearish for gold. Below charts make that point.

First, yields are rising with the dollar since last year. Now that is a very important insight, and should be carefully examined by investors. The point we try to make is that market correlations tend to work in the context of a cycle. In other words, a rising dollar could be the dominant trend and, during that trend, positively correlate with yields and negatively correlate with gold. That does not imply, however, that those correlations will last forever. On the contrary, they tend to last for a period of time, typically during a risk on / risk off cycle, as explained in Market Outlook 2017 According To Our Proprietary Indicators.

For the coming months, we see yields rising with a rising dollar. Watch how both markets successfully tested multi-year support, and are now set to higher. A break below their support line would invalidate our view.

The above two charts are bad news for gold bulls. We already explained why Gold Investors Watch Yields As A Gold Price Indication For March 2017.  Moreover, we described how Gold Gets Pushback From Other Markets. We also said that our gold price forecast for 2017 is bearish. It now seems that markets are nicely lined up to support our forecast.

Note that gold has lost steam right above a major trendline, exactly in the same month the dollar and yields successfully tested their important support lines. That is no coincidence, and only confirms the trends we outlined in this article.

If gold goes lower, we believe in late 2017 investors will be presented with a great buy opportunity in gold. That moment is simply not now, so gold investors should have a bit of patience before accumulating their favorite asset.