USD at Key Support with Implications for Gold

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The U.S. Dollar Index (DXY) is worth watching closely today, with important implications for Gold.

The DXY is pressing on key support at 96.40/50.  This represents the June 7 pullback low as well as the 200 DMA, the Sep 2018-Present support line, and the major up trendline off of the Feb 2018 low at 88.25, which initiated the up-leg to the April 2019 high at 98.33.

Given the cluster of many important support points at 96.40/50, a sustained (closing) breach of that zone likely will have significant technical implications that point DXY towards the 94.00 level, amounting to a potentially rapid decline of 2.5%.

Such a decline will argue that the Feb 2018 to June 2019 advance in the US Dollar has both peaked and topped ahead of a period of USD weakness that generally will present tailwinds for the commodity and precious metals markets. 

With respect to Gold, the price reaction to a USD breakdown will be interesting because August Gold futures already have rocketed 11% from $1272 in early May to $1415.40 last evening, which may have anticipated USD weakness.  In fact, anticipating this rally, we added NUGT to our model portfolio in early April, exiting on Jun 20 for a 33% return.

If any rally in Gold reverses sharply from $1420 in the upcoming hours– amid and despite USD weakness — the divergence will serve as a warning that Gold is ripe for a correction of its $140 advance sooner than later.

That said, should August Gold climb and sustain above $1420, my work will point to $1445/50 as a minimum next target zone thereafter.  This will argue that its multi-year upside breakout will continue unabated, perhaps in reaction to the combination of an easier Fed, a weaker USD, rising inflationary expectations, and heightened geopolitical tensions.