Originally published by Chamber of Merchants
Dollar Breaks Back Into Channel
Looking back at the dollar charts, it’s evident that instead of bouncing off of the up trading box, the US Dollar has actually broken through. This would be a signal to short the dollar. If I were in any positions that required the dollar to still appreciate, This is where I would consider stopping out:
I expect the dollar to at least test the 99.60 marker. Failing a bounce off the 99.60 level, we will likely see a move down to 98.20 where the dollar would then need to indicate its intentions: bounce or confirm its decline.
Looking at the Dow Jones FXCM Dollar, the dollar clearly failed to hold its high and has a ways to go before support is reached for its fall:
Meanwhile the Euro has regained its footing above the support and has fashioned a healthy bounce:
If the Euro has bottom out, then we can be confident in the Dollar’s continued decline.
However, I’m invested in Gold and Silver… not currency… So let’s examine where we’re at.
Gold
Gold has a date with $1200 USD. It needs to at least test the bottom side of the trading box. If gold is in a bear market it will get rejected. If it is in a bull market, as I believe it is, then it will break through with force since many shorts will close above $1200 USD. :
The long tailed reversal candle demonstrates that even though price dipped as low as $1158, the buying side of the market commenced buying in a frenzy fashion which promptly returned the gold price above $1170 UD.
Clearly, the price was rejected below the 49 Triple Exponential Moving Average, swiftly moving above it which, looking back at the chart, at the very least, signals a bounce which, as discussed above should be around the $1200 USD mark:
S
But wait… the dollar is waaay lower now than it was, yet, gold is still hanging around the $1170’s…
Why is that?
Ok… this is pretty important… It’s more important for future reference than you realise. But I will only spend a moment on it..
Yields
In the last rate hike, Bond yields were doing the exact same thing… Rallying into the heavens…
Now remember, while everyone including myself have been watching the bond market, I did previously indicate that the Fed Desk has permission to purchase up to 30 Billion dollars of bonds a day, so the yields are likely to reverse. The longer yields stay high, the more we are forced to beg the Federal Reserve to take control and free us from the prospect of what a free market would actually do.
Likewise, this is a similar chart for the gold price in contrast to bond yields leading up to the FOMC Rate Hikes:
Conclusion
The dollar is declining enough to send commodity prices rocketing. However, the FOMC meeting is keeping yields and gold / silver in check.
Once yields relent, I expect a violent bounce in the gold price.
Today is the 6th… New gold standard comes into play… Also, 8 days till interest rate decision….
See you around the shiny section of the market.