A recent rally in the U.S. Dollar looks to continue, indicating a sell off in gold and silver.
According to the charts, gold started to show signs of distribution selling in mid-October of last year. Then in November it appeared that major sellers were taking profits in silver.
Distribution selling is easy to spot on the charts. Typically you see heavy volume selling accompanied with strong moves to the downside.
The U.S .Dollar is showing the exact opposite price action with sharp rallies in October and November of last year. It’s normal to say that gold and silver move inverse to the Dollar so this price action makes perfect sense.
The dollar rallied through a key resistance level and since then has been consolidating support ever since. If this bullish pattern (bull flag) plays out, then it’s just a matter of time before the dollar makes another strong rally upwards, which will put downward pressure on stocks and commodities.
US Dollar Daily Chart
The 50 period moving average has provided key support/resistance levels for the previous trends and if it holds true going forward then we are not far from another rally in the dollar.
Dollar Chart
Silver Futures Daily Chart
Silver looks about ready to do the same thing as gold.
Silver Chart
Gold Futures Daily Chart
Gold moves inverse to the dollar so if we get a higher dollar then look for gold to have a stair step pattern lower.
Gold Chart
In short, we could see a major shift in momentum from up to down in both silver and gold and the equities market. Keep in mind the market has a way of dragging out patterns/moves so while the chart looks bearish and I think a reversal is near, things could just chop around for another month or so before a definitive breakout is made. Choppy market conditions are great for trading options. This is why you don’t want to anticipate moves (pick a top). Currently I am neutral on metals and the dollar waiting for a setup which must have clear risk/reward characteristics.
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