The buck has been struggling since early November.
The last time we took a look at it, we were willing to give the dollar the benefit of the doubt. On the chart, the US Dollar Index ($USD) had violated its pattern of higher highs and higher lows. But it was still trading above its 50-day moving average (MA). The momentum was still leaning bullish. And the buck looked to be setting up for a bounce.
That bounce ended abruptly yesterday.
The dollar fell 0.69% yesterday. That’s a BIG one-day move for a currency. It closed below its 50-day MA.
The dollar has formed a “lower high” on the chart. And there’s an even more bearish pattern developing. Take a look…
This chart is forming a “head and shoulders” pattern. This is a bearish formation that usually indicates the reversal of an intermediate-term bullish trend to an intermediate-term bearish trend.
The neckline, marked with the red line at $93, is critical support for $USD right here. If the buck breaks below that level, then the targeted move (which is the distance between the neckline and the top of the head) is a drop of another $2. That will bring September’s low of $91 back into play.
Of course, this chart is important to gold traders, too.
Gold and the dollar tend to move in opposite directions. So, if the dollar breaks down from here, then the next few weeks could be bullish for gold.
Traders should keep an eye on the $USD chart and the $93 level in particular. A close below that level should lead to more selling pressure on the buck – and more buying pressure for gold.
Best regards and good trading,
P.S. Just yesterday, I recommended a gold stock option trade to my Delta Report subscribers. A trade like that, in this market… well, it’s contrarian to say the least.
But that’s what we do in the Delta Report. We make low-risk trades in contrarian sectors, and lock in triple-digit returns while Wall Street chases the market ever higher.
To learn more about a subscription to the Delta Report, click here.
Today, readers respond to Jeff’s thoughts on bitcoin and gold in yesterday’s Mailbag…
I agree. Bitcoin is the big story in 2017. Precious metals will be the big story in 2018.
China, Russia, India, Turkey, and Iran are racing to buy it and stash it. Exchanges are being set up in the Muslim world, China, and India to convert financial products into gold. The petrodollar is slipping.
The big question is whether the gold standard will have to be reestablished in order to save the global economy after the accumulation of so much debt.
– Laura L.
I read several investment commentaries – most are free – to gain perspective.
I’ve never responded to any letter’s request for feedback until now. I like your conversational style, sharing how the setup looks, and also your “gut” feelings. I have a few gold stocks and physical silver, because at some point this market and economy are going to pay for our financial “sins” (debt).
Bitcoin… I bought some in the last two months as a speculation. But I also believe it’s a currency. Why? People believe in it. Countries accept it and can’t stop it. Companies accept it as payment . Easy portability for everyone, especially those in countries that have inflation and strife. You can’t carry that much gold and silver. It has a finite amount.
I see several more months of this going higher, then I’ll lighten up for the inevitable hit, then load up more for the long term.
I ask questions about bitcoin (plus blockchain) to family and friends. They aren’t involved. I have an open discussion but do not tell them to buy, but to look into it. In summary, there is less buying spread and concern about storing versus gold. But beware, there is the Wild West element and scammers are lurking.
– Riley T.
As always, feel free to send in your trading stories, questions, and suggestions right here.