Gold being odd and USD being tricky

November 29, 2017 10:36 AM

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Every now and then we see some kind of anomaly on the precious metals market. Sometimes it’s particularly useful and sometimes it’s just something random. Yesterday was one of those days when something didn’t seem right. The USD Index rallied, silver declined, mining stocks declined and yet, gold closed the session higher. What can we infer from this uncommon event?

Unfortunately, not much. It was just one day when gold behaved in this way, so at this time we have no reasons to believe that gold’s one-metal rally was anything important. One thing that was visible in the gold market and that wasn’t visible in other parts of the precious metals market was gold’s breakout above the triangle pattern. Consequently, yesterday’s strength might have simply been a consequence of the breakout and we already described it yesterday. We wrote that we could see an upswing, but we don’t think it will be anything major, for instance, a move to the October high. So, in a way, nothing changed, even though the relative moves during yesterday’s session might have raised many eyebrows.

Let’s take a closer look at the gold chart for details (charts courtesy of http://stockcharts.com).

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In yesterday’s alert, we wrote the following:

Gold moved higher on declining volume yesterday, but overall it continues to move back and forth below the $1,300 level. Its move above the 50-day moving average and then 2 closes above are somewhat similar to the October top. The Stochastic and RSI levels are similar as well. The above is weak, but still, a bearish sign. Even though Stochastic is at similar levels, we can see that the current reading is higher. In a way, even though the price of gold is lower, the above means that gold is closer to being overbought now than it was in October.

On a bullish note, gold confirmed the breakout above the triangle pattern, which could result in a short-term rally. Still, we don’t expect the upswing to take gold much higher – the October high seems to be a likely target if gold’s rally continues. Again, that’s a big if, as based i.a. on the 61.8% Fibonacci retracement in the USD, the latter could rally immediately and gold could decline immediately as a result.

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