Gold prices commonly move opposite the price action of the US Dollar. When the dollar is strong, gold tends to be weak. Conversely, when the dollar is weak, the gold price tends to strengthen.
The dollar has tended to be strong since February-March of last year as the chart below shows. Gold has made some progress during that period but no doubt dollar strength has held it back.
Now, there is a chance that things might be changing, just as gold moves into the April time window where it tends to be stronger. (See previous article on Seasonality.)
Several interesting things have happened:
The dollar has broken below a rising trend line going back to mid-April 2018, so the line is more than a year old and of some significance. It has broken below both the 50 day and the 200 day moving average as well. You can see that the linear trend line and the 200 day moving average have not been broken in about a year of trading, until the last few days.
If this was a very short term trend line, it wouldn’t have had much meaning. But, since this has not occurred during any of the previous dollar corrections over the past 12 months, the current break down could prove to be more important.
The dollar has failed to make it to new highs and has left a string of tops in the 97 range. If the bottom end of the trading range is broken on the downside, the chart would then show a large, triple top. Confirmation of a major top would not be a good thing for the dollar. The dollar has considerable support around 94. Note the number of lows in this price range. This will be an area to watch.
Lately, interest rates have been falling. Usually, that is bearish for the dollar because low rates make the dollar less attractive to hold. However, interest rates have been falling for some time and the dollar has held up well until recently.
The dollar does seem to be paying attention not only to the lower interest rates but the signs of economic slowdown. Perhaps it is the combination of the two, weaker price action and economic signs of a slowdown that is starting to influence the dollar price trend.
Only time will tell of course, but a break below 94 could prove to be an important signal for gold indicating a more dynamic phase of the current advance.
All charts courtesy of StockCharts.com. Information is derived from sources believed reliable, but cannot be guaranteed.