In our Aug 28, 2019 Update on Gold I noted that although GC had just reached our 1560 target, ZN had also reached our 132’100 target.  The picture was further muddled by the fact that DXY and GC had been moving in unison – an unusual occurrence, to say the least.

ZN’s resistance could put the brakes on, meaning rates would rise and GC would theoretically fall.  But…I expect ZN’s pullback to be modest — possibly only 3-4% — suggesting GC’s pullback would also be fairly modest.

As it turned out, GC and ZN both reversed.  Although DXY made a half-hearted effort to break out, it was limited to 1.5% and GC’s reversal was limited to 1446.

DXY’s rally stopped making any sense at all once FOMC members began hinting at additional rate cuts. When the Fed resumed QE (QE-not as we like to call it), the market knew what to do: DXY has been steadily selling off and GC has climbed back to within $30 of its August highs.

Does this mean more upside ahead?

continued for members…

I never bought the idea of a higher DXY when the Fed was busy pumping additional liquidity into the system. I’ve believed it was more a function of the year-end race for appealing market headlines.

In fact, DXY recently broke below an important channel line as well as a trend line dating back to Jan 10, 2018.

Given that December CPI is due to rise significantly (2.3-2.5% or potentially even higher) I don’t see GC giving up just yet. To me, the more appropriate question is where it will be when central bankers push the panic button. It had an opportunity to quit at the .618 last week; but, again, monetary policy is very loose. The existing rising red channel has seen plenty of adjustments over the past year.  By raising the top enough to fit the August highs, we can easily accommodate the 1588 target.The daily close-up:

To arrive at 1710 or 1735 in the very near future would mean expanding the rising red channel in a way that doesn’t look quite as legit and following the rising white channel instead — though I am very open to the idea if oil and gas don’t fall sharply by the middle of February.  I am partial, though, to the Fed putting the damper on inflation in January (reported in Feb) and setting up a backtest of the SMA200 or even the neckline which would set up another leg up to 1710-1735 in Oct 2021 or Jan 2022.  Note that this would tie in nicely with the idea of an oil/gas meltdown in 2023. GLTA.