This article examines the U.S. dollar chart as well as the gold price chart. Both leading assets arrived at key areas this week, and today’s sharp moves right at these critical areas could have a meaningful impact for the coming months.
First, the weekly U.S. dollar chart clearly shows that a huge support area is being tested right now. Moreover, the current price level coincides with the 90 week moving average, which, as readers know, is the only technical market indicator in our methodology. In other words, 94 points in the U.S. dollar index is an incredibly important price point.
Right at a time when the U.S. dollar chart is hitting that incredibly important support level, gold is hitting mega resistance. The weekly gold price chart shows multiple attempts to break through the descending trendline which spans over 3 years. That is definitely no coincidence, as both assets are inversely correlated.
So the million dollar question is which direction the dollar and the gold price are going? The odds favor that gold’s rally has run its course, for two reasons.
First, gold’s rally was “stopped cold” today exactly at the 3-year trendline, seen on the above chart, and reversed only to close at the lows of the day. The chart below is a close up: an hourly gold price chart. It makes our point that a bearish reversal took place right at the trendline.
Second, above described price action is happening right at a major level of accumulation of commercial net short positions in the COMEX futures market. Readers know by now that extreme levels of commercial net short positions are bearish, certainly if these were accumulated very fast (relative to past readings), as seen on the COT chart below.
All in all, we believe the U.S. dollar chart and the setup in gold is not favoring much more strength in the price of gold.