Two of 2017’s major investing themes thus far are the return of Gold (NYSEARCA:GLD) and the prolonged weakness in the U.S. Dollar (CURRENCY:USD).
Year-to-date, Gold is up 15.72% while the U.S. Dollar is down 9.57%. This follows a multi-year decline in Gold and a multi-year rise in the Dollar.
The question now is whether or not we will see a meaningful trend change in this relationship.
To help answer that question, let’s take a look at the Gold / U.S. Dollar ratio chart. When the trend is rising, gold tends to outperform… and when the trend is in a decline, gold is typically under pressure.
In the chart below, the trend is clearly rising (which has been a positive for Gold). However, you’ll also notice to factors that appear to be headwinds for gold going forward: (1) The rising trend is at a confluence of price resistance points. As well, it is testing the top of its 3-year trading range. (2) At the same time that the Gold/Dollar ratio is hitting price resistance, it is also seeing momentum hit levels last seen near the 2011 highs.
The takeaway: A “lasting” breakout above this level may require a momentum reset (i.e. a breather for gold first). And with other charts showing the U.S. Dollar oversold, this may be in the cards. Gold investors & traders will no doubt want to want to keep an eye on this ratio.
Gold / U.S. Dollar Ratio “Weekly” Bar Chart
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.