It’s happening again. The notes from gold bugs are starting to flood in, wondering whether this time is different, whether the breakout is real.
Recall that our last update [June 7 Update on Gold] came tantalizingly close to a bullish call.
If DXY falls through the midline of the purple channel (96.10) then, sure, GC could complete the IH&S and keep going. But, I think it’s unlikely. I think central bankers are loath to see gold break out, just like they’re loath to see the dollar break down past a certain point.
As it turned out, DXY did fall through 96.10. On Aug 10, GC popped up above a powerful trend line of overhead resistance (below in yellow) that has been confounding gold bulls since Sep 2011. It’s latest affront came on Jun 6, when it presided over a 7.3% month long reversal. Note that it was so strong as to send gold lower even while DXY fell (they are normally negatively correlated.)
As a result, GC finally tagged the .786 Fib at 1323.30. And, each test launch from North Korea and tweet from the White House lavatory sees it tick a little higher.
Will it finally break out? Is gold finally ready to shine?
continued for members…The short answer: no. Not unless actual warfare breaks out with North Korea, Iran, etc. Although it can certainly move higher from here, I don’t see it breaking out above 1380ish unless something very dramatic occurs. My reasoning remains the same as it was in June.
The government has been playing a game with inflation data for years, substantially understating it in order to save huge sums in cost of living increases. For the past 8 years or so, it has become even more important.
Interest rates must be kept exceptionally low, and higher inflation would make that difficult if not impossible. Since higher gold prices (supposedly) reflect higher inflation, suppressing the price of gold has been used to reinforce the low-inflation narrative.
Unfortunately for TPTB, it is becoming increasingly difficult to hide the fact that inflation is a problem and is becoming worse with every tick higher in the prices of housing and gas. Something has to give.
As we pointed out in June, 1348.60 is a key price level, as it represents 2 channel lines and the .886 retracement of the plunge from 1377 in July 2016. 
And, 1380 represents the neckline of a large IH&S targeting 1721. I think TPTB would rather suffer a nuclear blow than allow gold to rally 25% up to 1721.
But, what we’re talking about is a potential black swan event — an event defying forecasting. So, I’ll leave traders with this suggestion:
If GC is able to remain atop its SMA10/20 for the ride up to 1348.60, by all means ride along. If it pushes above, be prepared for a wicked reversal at any moment. And, if it pushes above 1380, go long (with tight stops.)
As for me, I suspect DXY has one more leg lower coming, possibly to 87.7 or 88.68. But, I don’t know how long it’ll take — meaning GC could go sideways or even slip lower for weeks. I think we’ll get one last spurt up to 1348 to correspond with DXY’s move, and that’ll be it (unless the black swan event occurs…)
Stay tuned.