The underlying reason why investors are so interested in gold and the dollar has to do with their perceived inverse correlation. We say ‘perceived’ because the inverse correlation only applies to the very long term. Shorter term, however, both assets are not strongly correlated.
Gold And USD To Start New Bullish Or Bearish Trend
First, let’s review the US dollar. The long-term outlook is bullish at this point. We explained the bullish case for the dollar based on the long-term US dollar chart. On top of that, we added in our US dollar forecast for 2017 that the 101 level was the line in the sand — once the dollar breaks for at least 3 consecutive weeks above 101, it becomes very bullish.
On the shorter time frame, USD basically confirms the observations and conclusions from the long-term chart. In general, that rarely happens, which leads us to conclude that the picture in the USD is very clear and concise (because it's similar on the short- and long-term charts).
As shown in the chart below, the dollar becomes very bullish above 101. Below 98.50, it is bearish on the short-to-medium-term time frame (secular bearish below 90 points). The chart suggests that n light of the triangle pattern, a new trend in the USD is near.
Gold is also in a ‘neutral’ zone, though it is also close to starting a new trend. Although the triangle pattern is different than the USD's, it leads to the same conclusion.
Gold becomes bullish on the short-to-medium time frame above $1290. It is bearish below $1220. As we said last week, we are watching gold prices closely in April as a new trend will become clear based on the aforementioned price point.
Gold's long-term chart suggests that its bear market continues until gold breaks above $1350. That's in line with our gold price forecast for 2017.
The SPDR Gold Trust ETF (NYSE:GLD) fell $0.08 (-0.07%) in premarket trading Monday. Year-to-date, GLD has gained 8.99% versus a 5.22% rise in the benchmark S&P 500 index during the same period.
GLD currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #6 of 33 ETFs in the Precious Metals ETF category.