Important breakout in the Dow-to-gold ratio and its implications for gold

Let us have a look at the Dow to gold ratio chart, as an important technical development took place there.

Here, we saw an important breakout above the declining long-term resistance line. This has bearish implications for gold. Please note that the breakout above the previous – much less significant – resistance line (the red declining line on the above chart) was followed by major declines in gold.

The next resistance level for this ratio is at 12.5 and with it currently at 11, declines in gold will surely be needed in addition to higher stock prices in order for the ratio to move this much higher (it seems that a move higher in the general stock market will not be enough for the ratio to move that high soon). The implications are, of course, bearish.

Summing up, the situation remains bullish for the U.S. Dollar Index. The recent declines in the Euro Index along with the breakout in the U.S. Dollar Index will likely keep the current bullish outlook in place for the coming weeks. The implications of the bullish situation here, especially for the medium term, are bearish for the precious metals. Gold prices declined last week and pulled back on Thursday but it still does not seem that this period of decline is completely over.

Thank you for reading. Have a great and profitable week!

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About the Author
Przemyslaw Radomski

Przemyslaw Radomski, CFA, is the founder, owner and the main editor of SunshineProfits.com.

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