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Despite Aggressive Fed Inflation, Gold Is Weak

Yahoo! Finance
The Exchange

By Stephen W. Cox, CMT

For some time now the U.S. Federal Reserve has been printing dollars aggressively but the price of gold, the classical inflation hedge, has languished. Traders who may be doubtful of the dollar/gold relation can see in the long-term charts that both the dollar and gold have ceased to trend for the time being.

Evidently the spark that will push gold and the dollar in opposite directions is absent now and the yearly charts of the dollar and gold may not diverge until the end of next year. But the charts imply that gold prices will trend favor.

Apparently gold’s alter ego, the ICE Dollar Index, has sputtered this year. The Index poked up above chart resistance at the middle red channel but now has lapsed back and so may be vulnerable. Certainly the Index won’t be freely bullish until it clears the highest resistance, the highest red channel.

The yearly chart of spot gold makes it clear that 2013 so far has been good for gold sellers. But it may that 2014 will be the year of the resolution of this impasse given the evident developed “pennant” formation at the top right of the unorthodox technical pattern, which may squeeze gold and so force a breakout or a breakdown.

The monthly chart of the Dollar Index shows that the dollar has been weak since the turn of this new century. I calculate that the Index will turn down after testing resistance at the white dashed line. The reader may benefit from comparing this chart with the two yearly charts that introduced this column. I believe that the comparison favors the prospect of eventual higher gold prices.

Finally, the most illuminating chart for the gold bull may be the monthly reading of spot gold’s latest uptrend. Set a moving stop under support at lowest red channel roughly in the relative proportions of the orange bar on the chart.

Stephen W. Cox is a Chartered Market Technician who covered the markets for Dow Jones Newswires for nearly two decades. He can be reached via email at StephenWCoxCMT@yahoo.com or on Twitter @StephenWCoxCMT.