By The Gold Report

Source: Clive Maund for Streetwise Reports   10/08/2017

Technical analyst Clive Maund examines the relationship between the dollar and precious metals.

The last gold Market update almost a month ago called the intermediate top within a day, as you may recall, and the subsequent Gold and U.S. Dollar
called the rally in the dollar the day before it started. Having seen a
significant reaction back by gold, the question now is “Has it run its
course?” The short answer to that is yes, although calling a bottom here
is complicated by the fact that gold’s COTs have not eased as much on
the reaction as we might have expected, and the dollar Hedgers’ chart is
still flat out bullish for the dollar. What this means is that we may
need to see some bottoming action by gold, even if it soon breaks out of
its rather steep short-term downtrend, and another possibility that we
will examine is that the dollar and gold rally in tandem, a rare
circumstance that could be occasioned by an extreme development such as
an attack on North Korea, although if this happens the peoples of Seoul
and Tokyo will doubtless have more important things to think about than
the price of gold.

On gold’s latest 6-month chart we can see how the reaction of recent
weeks has retraced about 50% of the prior rally, as tensions with North
Korea have temporarily eased. This reaction has more than fully
corrected the overbought condition resulting from the rally, and has
brought gold back into a zone of significant support just above its
rising 200-day moving average, and with moving averages in bullish
alignment, conditions generally favor a reversal and rally. The
“spinning top” candlestick that occurred on Friday on increased volume
may mark the turn, although the candlesticks that occurred on the charts
for silver and silver proxies look like more convincing reversals.

An important factor having a bearing on the outlook for the precious
metals was the nice reversal in copper on Thursday after a significant
reaction, with it gaining nearly 3%…

Given that copper tends to lead other metals as it did on the last
rally, this could well be followed by gold and silver reversing to the
upside after their reaction back to support, despite the dollar looking
like it has further to rally. Another positive factor for gold and
silver is that there was a full moon late last week and the Precious
Metals often reverse on either the new or full moon, although
astrologically silver is ruled by the moon and gold by the sun, which
may explain why the Incas, famous for their gold, worshiped the sun –
which makes a lot more sense than many of the other things that get
worshiped. If you think that is wacky, try this for size—eclipses are
thought by many astrologers to be a baleful omen, and you may recall
that on August 21st a total eclipse of the sun slashed right across the
U.S. from coast to coast. Soon after, the country was clobbered by a
succession of natural disasters, in addition to Donald Trump’s
Tweetstorms, with three massively destructive hurricanes impacting Texas,
then Florida, and lastly Puerto Rico. Coincidence? I think not.

On gold’s 8-year chart it continues to look like it is in the late
stages of a giant Head-and-Shoulders bottom pattern. The buildup in
volume over past 20 months certainly looks positive, especially over the
past several months, all the more so because it has driven volume
indicators higher, notably the Accum-Distrib line, which is not far off
making new highs—exceeding its level at the 2011 peak. Once gold
breaks above the resistance level approaching $1400 it will be on its
way, although it will then have to contend another important band of
resistance in the $1510 – $1560 range.

The latest COT chart for gold shows that, while positions have certainly
eased on the reaction of recent weeks, they have not eased by as much
as one would expect, which sounds a cautionary note and suggests that a
rally now may be stunted, and followed by more basing action before a
larger uptrend can gain traction. This accords with what we are seeing
on the dollar charts, especially the latest dollar Hedgers’ chart.

Click on chart to popup a larger, clearer version.

The Market Vectors Gold Miners, GDX, which functions as a gold stocks
index, is marking out a giant Head-and-Shoulders bottom that roughly
parallels the one completing in gold itself. The fact that the price is
still well below the strong resistance at the top of this reversal
pattern means that prices for many gold (and silver) stocks are still
very favorable. The volume pattern during the build out of this base
pattern is very bullish, with big volume on the rise out of the low
(Head) of the pattern, tailing off steadily as the Right Shoulder has
formed.

The dollar looks like it has put in an intermediate bottom. On the
1-year dollar index chart shown below, we can see that it has broken out
of its downtrend by a significant margin and looks like it may be
marking out a Head-and-Shoulders bottom, although it is still too early
to be sure. If it is then we will see a shallow dip to mark out the
Right Shoulder of the pattern before it then turns higher.

The latest dollar Hedgers’ chart certainly looks bullish, with the large
Commercial Hedgers having cleared out their short positions…

Click on chart to popup a larger, clearer version.

Chart courtesy of www.sentimentrader.com

Although we cannot reconcile this positive dollar outlook for the
medium-term (long-term outlook remains bearish) with a positive outlook
for the precious metals sector, there are times when the dollar and gold
and silver rally together. This could happen for example if some
drastic action is taken with respect to North Korea.

Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years’ experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.

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Disclosure:
1) Statements and opinions expressed are the opinions of Clive Maund and not of Streetwise Reports or its officers. Clive Maund is wholly responsible for the validity of the statements. Streetwise Reports was not involved in the content preparation. Clive Maund was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
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Charts provided by the author.