Dollar and Gold ‘To the Barricades’

This week it is the U.S. dollar and Gold taking their turns testing critical inflection points.

U.S. Dollar

As you can see in Figure 1, on a seasonal basis the dollar is moving into a traditionally weaker time of year.1Figure 1 – U.S. Dollar seasonality (Courtesy Sentimentrader.com)

In Figure 2 you can see that traders have been and remain pretty optimistic.  This is traditionally a bearish contrarian sign.2Figure 2 – U.S. Dollar trade sentiment (Courtesy Sentimentrader.com)

In Figure 3 we see the “line in the sand” for ticker UUP – an ETF that tracks the U.S. Dollar.  Unless and until UUP punches through to the upside there is significant potential downside risk.3Figure 3 – U.S. Dollar w/resistance (Courtesy TradingExpert)

Gold

As you can see in Figure 4, on a seasonal basis the dollar is moving into a traditionally stronger time of year.4Figure 4 – Gold seasonality (Courtesy Sentimentrader.com)

In Figure 5 you can see that traders have been and remain pretty pessimistic.  This is traditionally a bullish contrarian sign.5Figure 5 – Gold trader sentiment (Courtesy Sentimentrader.com)

In Figure 6 we see the “line(s) in the sand” for ticker GLD – an ETF that tracks gold bullion.

6Figure 6 – Gold w/support (Courtesy  TradingExpert)

I would be hesitant about trying to “pick a bottom” as gold still looks pretty week.  But if:

a) GLD does hold above the support area in Figure 6 and begins to perk up,

AND

b) Ticker UUP fails to break out to the upside

Things could look a lot better for gold very quickly.

Summary

As usual I am not actually making any “predictions” here or calling for any particular action.  I mainly just want to encourage gold and/or dollar traders to be paying close attention in the days and weeks ahead, as the potential for a major reversal in both markets appears possible.

Likewise, if no reversal does take place – and if the dollar breaks out to the upside and gold breaks down, both markets may be “off to the races.”

So dollar and gold traders – take a deep breath; focus your attention; and prepare for action…one way or the other.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.