Source: Clive Maund for Streetwise Reports 10/22/2017
Technical analyst Clive Maund discusses the outlook for the U.S. dollar and its implications for gold.
The dollar is getting ready for a sizable rally, and that means that
gold and silver are going to be knocked back again. Longer term however,
the outlook for the Precious Metals could scarcely be better, as we
will see.
In last weekend’s update it was pointed out that gold’s gap breakout
from its steep downtrend shown on its latest 6-month chart below was
probably false and that it was expected to drop back as the dollar
advanced, which it duly did last week. Bearing in mind that the dollar
has about completed its Head-and-Shoulders bottom, it is now clear that a
parallel Head-and-Shoulders top is completing in gold as shown on the
chart. This chart projects a breakdown beneath the nearby support level
to be followed by a drop targeting the quite strong support in the $1200–$1215 area.
Gold’s latest COT chart still looks more bearish than bullish, with a
lot of room for improvement, such as would be occasioned by a drop to
the $1200–$1215 area.
Click on chart to popup a larger, clearer version.
On gold’s 8-year chart it continues to look like it is in the late
stages of a giant Head-and-Shoulders bottom pattern. The buildup in
volume over the past 20 months certainly looks positive, especially over
the past several months, all the more so because it has driven volume
indicators higher, notably the Accum-Distrib line, which is not far off
making new highs—exceeding its level at the 2011 peak. Once gold
breaks above the resistance level approaching $1400 it will be on its
way, although it will then have to contend with another important band
of resistance in the $1510–$1560 range. A near-term retreat by gold to
the $1200–$1215 area in the face of a dollar rally will not damage
this long-term technical picture.
The Market Vectors Gold Miners, GDX, which functions as a gold stocks
index, is marking out a giant Head-and-Shoulders bottom that roughly
parallels the one completing in gold itself. A near-term decline to $20-$21 in GDX will be viewed as presenting another important buying
opportunity for the sector. The volume pattern during the build out of
this base pattern is very bullish, with big volume on the rise out of
the low (Head) of the pattern, tailing off steadily as the Right
Shoulder has formed.
The latest 6-month chart for GDX shows an upsloping Head-and-Shoulders
top completing which parallels the one completing in gold itself. This
pattern targets strong support in the $20-$21 area following the
expected breakdown.
Over the past several weeks the dollar has behaved exactly as predicted
in recent updates, as it has dropped back to complete the Right Shoulder
of its Head-and-Shoulders bottom, and last week started to advance
towards the upper boundary or “neckline” of the pattern in readiness for
the upside breakout and advance. This Head-and-Shoulder bottom targets
the 97 area as shown, near to the falling 200-day moving average…
Our prediction made many weeks ago that the dollar would rally off the
lower boundary of its big bullhorn pattern shown on the 4-year chart
below to break out above its restraining Dome has proven to be correct,
and a projection has been drawn on this chart showing roughly what is
expected to happen. As we saw above on the 8-month chart, the base
pattern now approaching completion targets the 97 area approx. This is
the “swansong rally”—the dollar’s last rally before it “hands in its
dinner pail,” and should present a wonderful last opportunity to
accumulate the better gold and silver stocks, before the dollar does an
about face, and breaks down from the large Broadening Top pattern into a
severe decline.
The Hedgers chart has been warning for weeks that the dollar will
reverse and rally, as has been pointed out repeatedly. The latest chart
shows that the rally is still ahead of us—which is congruent with the
dollar having completed a valid Head-and-Shoulders bottom.
Click on chart to popup a larger, clearer version.
Chart courtesy of www.sentimentrader.com
Finally, it is a matter of conjecture what will drive a dollar rally
over the medium-term, but one possibility is an escalation of the
Catalonia crisis, with the Madrid government attempting fascist style
repression of the Catalonian’s drive for independence leading to
conflict. Both Madrid and the European Union have an interest in
crushing the Catalonians, since both profit from centralization of
power. Thus to whatever extent the Catalonians are successful, it will
inspire other would be breakaway regions across Europe, further
undermining the European Union and thus putting pressure on the euro,
hence a dollar index rally, as the dollar index is made up approximately
57% of the euro.
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years’ experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.
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