Wins in October – The U.S Dollar and Gold

The markets have seen sharp declines in equities and oil this month. Not all areas have been difficult though.  Gold has seen healthy gains (5% advancement, 2nd chart) and the U.S. Dollar has risen around 2%.  We’ve watched the U.S. Dollar closely this year as it relates to gold, and thought the chart would be interesting to share.

Looking at a longer time frame (weekly chart), we see a horizontal resistance line around $98 that has been tested numerous times over the past 4 years.  There is also a sloped trend-line that has acted as both support and resistance over the same period. Both lines now meet near that $98 level.

Using the oscillators for guidance, it is clear that the lines are still heading upward, however the divergence is what’s important.  One can see that the topping area in May price corresponded with high CCI readings. Price has advanced from May, however the CCI has failed to make higher highs. The same can be said for RSI readings from August to the current price.  We see lower oscillator readings as price is attempting to retouch the price high.  Adding in the flat momentum (PMO) reading since mid-summer, it appears that the $US Dollar advancement is running out of steam. It would not be surprising to see price a little bit higher and then stalling out.

We follow gold closely. To many, gold is considered a “safety net” for a portfolio when there is turmoil elsewhere.  Gold’s performance this summer was frustrating for anyone who holds it long term. Lately though, it’s been living up to its “safety” goal to say the least.

When equities charts look like falling knives, remember that there are other asset class out there.   Researching correlations between asset classes can be beneficial when building a portfolio. Alternatives and diversification can possibly cushion the fall.

-This is for educational purposes only and should not be considered investment advice.