As the Dollar Currency Index approaches upper resistance in the $97.50 region, Gold looks attractive for a quick play.
Everyone and their dog knows that Gold and the US Dollar (DXY) typically trade inversely, Dollar up > Gold down. Although this correlation has been breaking down in recent months; no doubt a weak Dollar provides tailwinds for Gold.
Surprisingly, since the most recent FOMC meeting where Powell announced that QT would end in Sept, the Dollar has not broken down. You would think that this historic Dovish pivot would lead to a weaker Dollar. To me the Dollar strength is due to its relative attractiveness, specifically against EUR, JPY, GBP and CAD. Kind of a best of the worst type of situation.
As seen above, Gold has taken a hit recently selling back down to $1285. I suspect that this will remain a support for Gold and we see higher prices in the coming days as the Dollar sells off the upper resistance and Gold catches a bid.
Long term I’m Bullish Gold, I think it will be the asset of choice when monetary policy begins pushing on a string to try and stimulate growth. Near term, the Dollar strength in regard to the Dovish pivot leads me to believe the path of least resistance is upward/sideways for DXY and therefore we may eventually see some Gold downside when DXY breaks above $97.70
In short, if DXY sells off this upper resistance then Gold will likely have a few dollars of upside potential.
To play a Gold rally in the coming days, GDX has been my instrument/underlying of choice. I’m a buyer at ~$22.
Thanks for reading