Is the US Dollar Building Strength to Push Gold Prices Down? / Commodities / Gold & Silver 2023
The USD Index is a key driver of goldprices (apart from real interest rates). How much strength has it shownrecently?
In yesterday’s analysis, I compared thecurrent situation in the precious metals to the one in stocks that we saw lastyear. It appears that the similarity remains up-to-date as gold is up intoday’s pre-market trading (at the moment of writing these words).
As you may recall, last year, stocksdidn’t decline until the second session of the year. Of course, the historydoesn’t have repeat itself to the letter, but I wouldn’t make too much of theupswing in the first few days of the year. Here’s what we wrote about thismatter yesterday:
Doyou remember the “January rally” that we saw in early 2022? It lasted less thantwo days. Stocksmoved higher in the first session of the year, and they formed anintraday top during the second session of the year.
Andthen, the S&P500 moved from about 4,800 to levels below 3,600.
So,looking at the early-January performance might be misleading.
Thelower part of the above chart features gold, silver, and the HUI Index(proxy for gold stocks). As you can see, silver outperformed gold strongly inDecember, while gold stocks did almost nothing, greatly underperforming gold.That’s a very powerful bearish indication for the following weeks. After all,that’s exactly what tends to happen close to market tops – silver outperforms,while gold stocks lag.
Interestingly, stocks started this yearwith a bearish reversal.
Of course, these are not the reasons forthe decline per se – I listed multiple thereof (e.g., rising real interestrates) in my previous analyses.
The other key driver of gold prices(besides real interest rates) is the USD Index, and it just showed strength.
The USDX is down in today’s pre-markettrading, but it moved substantially higher yesterday. High enough to make itclear that the very strong support provided by the 2016 and 2020 highs held.
This, in turn, means that anothermedium-term rally in the USDX is likely to begin any day now – and perhaps it’salready underway.
From the short-term point of view, weonly saw a daily rally so far, and this rally is being corrected right now,which means that the USDX is still in preparation mode.
Still, the above short-term chartcontinues to provide us with bullish implications because of the greatsimilarity between the recent action in the USDX itself and the RSI based on it(not to mention the correlation with gold that you can see on the bottom of theabove chart) and what happened in mid-2021.
The lengthy bottom was followed by asmall breakout at first, and then by a bigger rally. Both gold and silver fellsubstantially at that time, and it was the start of an even bigger decline injunior mining stocks.
What we saw yesterday was perhapsanalogous to that small breakout that started it all previously.
The goldprice itself moved to its 50% Fibonacci retracement level, and thenmoved back down. It reversed on an intraday basis on relatively big volume. Itdidn’t erase most of the rally, so the bearish indications from the reversalcandlestick are not strong. However, the fact that gold moved to one of its keyretracements is notable.
In today’s pre-market trading, goldfutures moved a bit above that level, but the breakout is not yet confirmed.
Silver reversed in a much more profoundand clear manner. In silver’s case, the reversal was clear, and it wasconfirmed by relatively big volume. This is a bearish indication for the shortterm.
In today’s pre-market trading silvermoved a bit higher, but it didn’t manage to move above yesterday’s intradayhighs.
Junior miners moved very close to theirprevious highs, but then reversed and ended the day visibly below them.
Consequently, nothing really changed, andthe overall shape of yesterday’s session was bearish – as it’s the case withdaily reversals.
All in all, the short-term outlook forthe precious metals didn’t really improve and it remains bearish for thefollowing weeks.
Naturally, the above is up-to-date at themoment when it was written. When the outlook changes, I’ll provide an update.If you’d like to read it as well as other exclusive gold and silver priceanalyses, I encourage you to sign up for our freegold newsletter.
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Toolsfor Effective Gold & Silver Investments - SunshineProfits.com
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