Firmer Dollar, Softening Commodities

For a week and a half, the dollar (looking at the DXY cash dollar index) has formed a minor bottom and has climbed above its March-November resistance line, while spot gold prices have carved out a high-level trading range between $1065 and $1025. In other words, the rally in the dollar index has not (yet?) impacted spot gold prices negatively. My sense is that the DXY must hurdle and sustain above 77.40 to trigger upside acceleration in the dollar, at which point holding long spot gold positions could be very risky (near-term). Really what we are asking is if “this time is different”? Can gold and the SPDR Gold Shares (NYSE: GLD) find a reason to rally with the dollar? For a while, yes, but not for any extended period (IMHO).

Moving over to oil, nearby crude oil prices are pressing on a very important support plateau at $76.60/50, which if violated and sustained should trigger additional weakness as the price structure returns into its prior multi-month range. My near- and intermediate-term work point to lower prices for oil and the U.S. Oil Fund ETF (NYSE: USO), especially if the dollar continues to climb, which points to a test of the 50 DMA next, at $72.80 - likely on the way to $69.00-$68.50 thereafter.

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