2. Points To Be Covered Today:
• Negative Correlation Between Gold And The USDX.
• The Fight Between Gold And The USDX.
• Gold When The USD Index Rallied Then.
• USD Index And The General Stock Market Performed When
Gold Ended.
• Gold: Reversal Is The Name Of The Game
3. Negative Correlation Between Gold And The USDX
• The USD Index is moving lower, below the recent lows. It’s
currently trading at about 89.6, which means that after a few
days of back-and-forth trading, it moved down once again – and
(from the short-term point of view) quite visibly so.
• What did gold do in response? It slid by 0.04%, which is a way
of saying that it didn’t do anything.
• It should have rallied and broken above the recent highs. It
didn’t, which indicates that the rally is likely over or about to be
over. But let’s get back to the USD Index.
5. The Fight Between Gold And The USDX
• Today’s move lower is a continuation, and most likely the final part, of a specific multi-
bottom pattern that the USD Index exhibited recently.
• I marked those situations with green. The thing is that the U.S. currency first declined
practically without any corrections, but at some point it started to move back and forth
while making new lows.
• The third distinctive bottom was the final one. Interestingly, the continuous decline took
place for about a month, and the back-and-forth declines took another month
(approximately).
• In July 2020, the USDX fell like a rock, and in August it moved back and forth while still
declining. In November 2020, the USDX fell like a rock (there was one exception), and in
December it moved back and forth while still declining.
• Ever since the final days of March, we’ve seen the same thing all over again. The USD
Index fell like a rock in April, and in May we’ve seen back-and-forth movement with lower
lows and lower highs.
• What we see right now is the third of the distinctive lows that previously marked the end of
the declines.
6. Gold When The USD Index Rallied Then
• In August, gold topped without waiting for USD’s final bottom – which is natural,
given how extremely overbought it was in the short term.
• In early January, gold topped (which was much more similar to the current
situation given the preceding price action) when the USDX formed its third, final
distinctive bottom.
• The USD Index is after a two-month decline, half of which was the back-and-forth
kind of decline. It’s forming the third – and likely the final – bottom, and gold just
refused to react positively to this situation in today’s pre-market trading.
• This might be “it” – the markets might be forming their final reversals here,
starting to follow the most bearish (in the case of gold) part of the analogy to the
price action in 2008 and 2012.
• Gold seems to be insisting on repeating – to some extent – its 2012 performance,
and – to some extent – its 2008 performance. Either way, it seems that gold is
about to slide.
8. Reversal In Gold
• The reversal in gold took place after gold moved very close to
its mid-January highs and the 50% Fibonacci retracement
based on the August 2020 – March 2021 decline.
• The sizes of the current rally (taking the second March bottom
as the starting point) and the rally that ended at the beginning of
this year are practically identical at the moment.
• Just as the rallies from early 2012 and late 2012 (marked with
blue) were almost identical, the same could happen now.
9. USD Index And The General Stock Market Performed
When Gold Ended
10. USD Index And The General Stock Market Performed
When Gold Ended
• The March 2021 low formed well below the previous low, but as far as other
things are concerned, the current situation is similar to what happened in 2012.
• The relatively broad bottom with higher lows is what preceded both final short-
term rallies – the current one, and the 2012 one. Their shape as well as the
shape of the decline that preceded these broad bottoms is very similar.
• In both cases, the preceding decline had some back-and-forth trading in its
middle, and the final rally picked up pace after breaking above the initial short-
term high.
• Interestingly, the 2012 rally ended on huge volume, which is exactly what
we saw also on May 19 this year. Consequently, forecasting much higher
gold prices here doesn’t seem to be justified based on the historical
analogies.
• The lower part of the above chart shows how the USD Index and the general
stock market performed when gold ended its late-2012 rally and was starting its
epic decline. In short, that was when the USD Index bottomed, and when the
general stock market topped.
12. USD Index
• Gold corrected to 61.8% Fibonacci retracement, but it stopped
rallying approximately when the USD Index started to rally, and
the general stock market accelerated its decline.
• This time the rally was not as volatile, so the lower – 50%
Fibonacci retracement level will hold the rally in check.
• Taking into consideration that the general stock market has
probably just topped, and the USD Index is about to rally, then
gold is likely to slide for the final time in the following
weeks/months.
• Both above-mentioned markets support this bearish scenario
and so do the self-similar patterns in terms of gold price itself.
13. Gold: Reversal Is The Name Of The Game
• When the USDX declines, the PMs usually celebrate and rise
as a result. However, this was not the case yesterday – and we
can’t ignore it.
• “Reversal” is the name of the game, at least when it comes to
the precious metals market.
• The USD Index declined profoundly once again yesterday (May
18), and gold, silver, and mining stocks ignored this move. They
didn’t want to follow in its footsteps anymore.
15. USD Index – I
• As you can see, the USD Index reached its horizontal support
provided by the previous important low.
• Low that was formed after a fake breakdown below the neck level of
a supposedly bearish head-and-shoulders pattern.
• The USDX is not only at similar price levels; it’s also right after a
supposedly bearish breakdown below.
• The reversal could be just around the corner, or we might have
already seen it, given today’s (small, but still) pre-market move
higher.
• As I mentioned above, yesterday’s sizable decline in the USDX
should have triggered substantial rallies in the PMs. What happened
instead?
17. What Happened To Gold
• Gold reversed right at its triangle-vertex-based… well, reversal,
and the combination of resistance lines.
• The reversal in gold took place after gold moved very close to
its mid-January highs and the 50% Fibonacci retracement
based on the August 2020 – March 2021 decline.
• The sizes of the current rally (taking the second March bottom
as the starting point) and the rally that ended at the beginning of
this year are practically identical at the moment.
