Dollar Weakness Is Providing Strong Support In Gold Market

In his latest analysis of the markets, professional trader Dan Norcini describes his observations related to the dollar and gold. The most striking observation in today’s market was the weakening of the US Dollar, not being able to gather safe haven buying in the midst of a deteriorating crisis in Ukraine. That is in sharp contrast to the traditional safe haven currency during times of financial or geopolitical crises, as evidenced in the last years. For instance, the US Dollar was bid during the crisis of 2008, during the European Sovereign Debt Crisis, but also when the idea of a Fed tapering first began to surface. All that seems to be gone, at least based on the recent price action in the dollar. The dollar chart makes this point.

dollar_13_march_2014

Dollar and gold analysis by Dan Norcini:

One thing for sure is occurring however – Treasuries are getting a firm bid out of safe haven plays. That is dropping interest rates and appears to be undercutting the Dollar although one does wonder how a rush into Dollar-denominated Treasuries is not Dollar supportive. There are so many new and different developments in these markets anymore that attempting to understand them all is proving to be an exercise in futility.

What I do know however is that this persistent Dollar weakness, is providing a strong floor of support in the gold market.

In the past, when we did get a general round of Dollar selling, almost as if in inverse lockstep, the commodity sector would march higher as the weakness in the currency would trigger a big macro trade across the sector.

This is not occurring. Copper continues to sink lower and lower and while crude oil is managing a bit of a bounce today, the products are both weak. Individual commodity markets are powering higher ( Coffee, Hogs, Cotton) but the broad-based buying in the sector is lacking. You can see this in the relatively weak performance of silver compared to gold. Silver is following copper today and acting like an industrial metal rather than a monetary metal ( you never know what you are going to get with schizophrenic silver from day to day).

I am very closely monitoring this Dollar chart however. The market is poised right above an important chart support zone near the 79 level basis USDX. If that goes, I expect to see gold reach the psychological $1400 mark.

The ADX is now rising along with the Negative Directional Movement Indicator ( RED LINE) showing the bears are currently in control of the market and a trending move is looking more likely. Again, that will require the support zone to give way but unless the bulls make a firm stand here, they are going to cede complete control of the market to the bear camp.

The HUI looks like it woke up from its slumber of yesterday. It has finally managed to clear 250 which is a real positive. I need to see this index power above 280 for starters to conclude that a stronger bullish uptrend is developing. Still, one has to be happy for the long suffering mining sector bulls who have been mercilessly pummeled for so long. At least their portfolio balances are finally moving higher.

We’ll have to see what develops further over in Ukraine but for now, it has certainly spooked equity bulls and that is sending money flows into both gold and Treasuries for the time being.

This Dollar weakness is troubling, very troubling…

(Original source: Dan Norcini’s personal blog)

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