In our last major update [see: Jan 26 Update] we noted that gold, 1355 at the time, had reached the same price level at which it had frequently reversed. Even though we’d had a bullseye at 1377-1380 for over a year, it had stopped short several times.
GC is sitting just below the neckline of the huge IH&S that could result in a significant breakout. The fly in the ointment: I don’t think TPTB will let it break out. So, you should either take profits here in the 1348-1365 range, or at least set your stops at this level.
As it happened, 1365 (reached the day before) was the cycle high. Gold tumbled 4.1%, then bounced around between roughly 1308 and 1362 for the next two months. Our interim posts caught most of the moves:
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Feb 8: Analog Details “[Gold] has dropped 4.1% since reversing where expected in late Jan, and just reached fanline and double channel support [1321.] Could it finally be ready to tag 1377-1380?” Bottomed that day, rallied to 1364 over the following week (+2.51%.)
Feb 15: Where to, Next? “GC might have run out of steam here [1360.] Cautious types might want to take profits, while the daredevils out there remain focused on 1380.” Topped out the following day at 1364 (+2.95%.)
Feb 27: Powell’s French Toast “Gold is getting clobbered…our analog suggests a Mar 1 turning point. The SMA100 should be around 1303 by then and would be a better bounce spot.” Bottomed on Mar 1 at 1303.60 (+4.15%.)
Mar 27: Algos to Markets – All Better “GC, which tagged its 1362 resistance yet again, has retreated once more. It still has a good shot at 1380, but only if/when DXY finally breaks down.” Reached 1369.40 today (+5.05%.)
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So, here we are, sitting on a tidy 14.7% gain. It’s not terrible for 2 1/2 months work, considering gold has only netted a 0.9% gain during that period. But, I hate to leave money on the table. Is it time to pull the plug on 1377-1380? Or, are we about to reach or exceed it?
The two major factors at work are the ongoing saga of the US dollar and the possibility of a shooting war with Russia in Syria. I can’t speak to the question of a war other to say anything’s possible, especially with the crew currently running the ship.
The dollar is another matter. While it normally rises and falls in sync with interest rates, this relationship reversed at the end of 2017. At that point, DXY logged another leg lower while TNX spiked. At just shy of 3%, the TNX became a drag on equities — the whole “going broke” thing [see: Why Rising Rates Are a Problem This Time.] But, as the gyrations in equities picked up again, great care was taken to ensure it didn’t plunge in value.
I suppose the thinking was that lower rates would weaken the dollar’s appeal. Or, maybe it was just fear of a yield curve inversion. In any case, TNX’s purple TL has refused to break down. DXY also refuses to break down. And, this could go on for quite a while. It needs to tag the bottom of the rising purple channel. But, until mid-July rolls around, that would mean dipping below the .618 at 88.423. So, it’s quite possible TPTB will prop it up for another three months!
Remember, Mnuchin publicly stated he wants to support the USD. And, it goes without saying that he, like every central banker, loathes any serious price appreciation in gold, as it undermines the value of the mighty dollar. One silver lining, EURUSD suggests a shorter timeframe, say Jun 5. But, even two months would be a long time to wait for another few points. An escalation in MENA tensions could obviously accelerate things. But, is it worth taking the risk for 10-15 points? I think not. I’d pull the plug or at least enter stops here at 1367. If it pops above 1380, great. No argument with going long, again. DXY could drop to 87 tomorrow, and GC could easily reach 1377-1380 or higher.
But, if DXY continues sideways, and unless war breaks out in the next day or two, it seems likely that gold’s next move will be lower. The most obvious support is at the rising white channel bottom and SMA100, currently around 1315.2-1318. If the channel breaks down again, the SMA200 will reach the purple channel line later this month, probably around 1300. I’ll update things if we see a material deviation in either direction.