The daily gold chart is another I have commented on extensively over the last few years, and one aspect in particular which has been interesting recently is the apparent breakdown in the traditional relationship with the US dollar. And to highlight this, I have attached my Quantumtrading currency strength indicator for NinjaTrader alongside the daily chart for the precious metal. The red line is the US dollar and as we can see this has been falling strongly on the currency strength indicator to the left of the chart on the daily timeframe and is once again approaching an oversold state.
However, when we consider the daily chart for gold, this sustained weakness in the US dollar, is not reflected in similar strength for gold which is the usual relationship we expect to see. Whilst the precious metal has made attempts to rally, these have all run into weakness relatively quickly, building resistance in the $1520 per ounce region as denoted by the accumulation and distribution indicator for NinjaTrader with the red dashed line. This is a level which has already been tested several times, and the indicator displays this automatically in terms of the thickness of the line and is helping to keep gold rangebound and trading around the volume point of control which sits at $1505 per ounce and denoted with the yellow dashed line. The volume point of control or vpoc is where the heaviest concentration of transacted volume resides. Friday’s price action confirmed gold’s current malaise with the precious metal kissing both these levels during the trading session, before closing with a candle of indecision. Thursday’s candle and volume were also interesting with a solid move higher on the day closing the session with a wide spread up candle, but note the volume which looks rather weak in contrast. The gapped up open this morning also hints at another run to the ceiling of resistance.
What will be interesting to see over the next few weeks, is once the US dollar recovers some bullish momentum and moves from away from the oversold region, whether this, in turn, will reconnect the relationship with gold, or whether the current disconnect will continue.
By Anna Coulling
Charts from NinjaTrader
Currency strength indicator for NinjaTrader – You can find further details here
Always interesting Anna, although always get the feeling how rigged the precious metals are rigged.