Important Action in the USD Index with Major Consequences for Gold

Gold and miners rallied yesterday, but that was not the key action that happened. The key events happened in the USDX.

Let’s still start with the former.

Important Action in the USD Index with Major Consequences for Gold - Image 1

Gold moved higher despite their two daily reversals, which was an unlikely move. It happened as gold was pretty much forced to rally, given the move lower in the USD Index.

Now, whether this move higher is sustainable or not is a different matter completely. The fact that gold has already moved lower in today’s pre-market trading suggests that this is not where gold really wants to go.

How come? Gold closed above the rising resistance line for just one day, while the USD Index declined significantly, and today, gold is down even though the USD Index moved even lower. This means that gold is “fed up” with rallying, and it’s waiting for a trigger to move lower. And it’s about to get it.

The situation in junior mining stocks has “THIS IS A TOP” written all over it.

Important Action in the USD Index with Major Consequences for Gold - Image 2

The above hourly chart shows just how strong the current combination of resistance levels really is. The GDXJ is – at the same time – at the upper border of its rising trend channel and at its July high. The small breakout above this high was previously invalidated, so the same fate likely awaits the GDXJ also this time.

Of course, all the above is on top of what I already wrote about miners, gold, and silver in my previous Gold Trading Alerts.

Moving on to the trigger and to the main part of today’s analysis – let’s take a look at the USD Index.

Important Action in the USD Index with Major Consequences for Gold - Image 3

I mentioned both in one sentence because the trigger for the precious metals market is likely to come from the USD Index (and from the general stock market, but I’ll write more about that tomorrow).

In fact, this trigger is almost already here. Let’s check the facts:

  1. The USD Index is after a sizable, short-term decline, which caused it to be very oversold in RSI terms.
  2. The last two times, when the RSI was similarly oversold, immediately preceded bottoms and rallies (including the yearly bottom).
  3. The USD Index is slightly above the all-important 100 level, which serves as strong support due to psychological reasons (everyone notices it as it’s a perfectly round number).
  4. The USD Index is at its previous bottoms – each time the USD Index got close to the current levels in 2023, it then bottomed and rallied.
  5. It’s very close to the turn of the month, and the USD Index has a strong tendency to reverse its course close to those moments (as marked with blue dashed lines). Since the last move was to the downside, the reversal has bullish implications.

There is one additional clue on the long-term chart.

Important Action in the USD Index with Major Consequences for Gold - Image 4

It’s the rising, long-term support line that started in 2011. It was reaching this line that triggered the reversal and caused the yearly bottom to form. Precisely, the USD Index broke slightly below this line, and it was the invalidation of the breakdown that created the bottom.

The USD Index is EXACTLY in the same position right now!

Due to all points listed below the USD Index’s short-term chart, the U.S. currency is very likely to rally, at least in the short run. This, in turn, means that it would invalidate the breakdown below the rising, long-term resistance line, just like it did at the 2023 bottom, thus flashing a similar, long-term buy signal.

This is a profoundly bullish combination, even though it might be difficult to view it as such, when focusing on the last few days’ performance.

Since gold is now willing to decline even while the USDX is moving lower… Gold is likely to truly plunge (and the same goes for other commodities, like natural gas) when the USD Index finally rallies. And it looks like both are about to take place.

= = =

The full version of today’s analysis - today’s Gold Trading Alert -is much bigger than what you read above, and it includes not only the initial downside target for the GDXJ (level from which juniors could rebound) but the entire price path that the GDXJ is likely to take (with specific target areas (for declines and rallies). I encourage you to subscribe and read those premium details today. Of course, as my premium subscriber, you’ll get the intraday Alerts whenever the situation requires them – that’s one of the parts of the service that my subscribers tend to enjoy the most.Sincerely,

Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief