Dollar Struggles, Gold Consolidates; Oil To Triple Digits?

The U.S. dollar index (DXY) finally entered the anticipated corrective phase as I called for it last month.

US Dollar Index

The confirmation came with the breakup of a gray resistance. The structure is not as sharp as I expected as the price is still below the Fibonacci retracement zone. All spikes are still around the initial breakout peak, around 90.5.

The RSI accurately predicted the reversal with the Bullish Divergence, although the progress does not impress with the reading around the neutral 50 level. The thing is that the current level is enough to resume the sales of the dollar as the indicator retraced from the oversold area.

The touchpoint with the red resistance coincides with the 50% Fibonacci retracement level at 91.49. The price still could make another sharp move up to reach at least the minimum retracement notch of 38.2% at 91.03. After that, the collapse of the DXY could resume.

Indeed, the dollar struggles to raise its head to the upside, and this could signal a huge drop ahead, far below the 2018 valley at 88.25. The price could reach the bottom of the red downtrend around 84. The bullish trigger sits on the top of a larger consolidation established earlier at 93.44.

Do you think the dollar will resume its collapse after consolidation?

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It looks like gold has synchronized with the dollar as they both confirmed a correction, simultaneously lagging far behind silver.

Dollar: Daily Gold Chart

The blue support was finally broken down as the price entered the consolidation. The mirrored price action with the dollar has emerged here, as gold did not touch the minimum retracement level of 38.2% at $1825. This could build the perfect pullback to the broken resistance with the subsequent reversal to the upside, as shown with the green path.

The RSI dives below the crucial level amid the breakdown in the price chart. A further collapse could be limited as bulls could take this chance to buy the dip as an indicator that now has enough room to resume the rally.

The minimum bullish target is located at the all-time high of $2075. The AB/CD target in the bigger chart is located higher at $2300. The small size of the current consolidation could signal another corrective structure of a larger size on the way to the upside.

How deep will gold retrace?

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Silver was the first to start the consolidation, but it is still below the bullish trigger. It did not overcome the upside of the Bull Flag pattern yet. It seems like the market forces wait for a clear signal, and the dollar, gold, and silver are being synched in the meantime.

Crude oil is coming back strongly after the unprecedented crash last year. It sets one multi-year top after another, as the next crucial resistance is located at the peak of 2018 at $76.88 with a current price close to $71.

Dollar: Gold/Oil Ratio

The Gold-Oil ratio in the chart above reflects how many barrels of crude oil could buy one troy ounce of gold.

We can clearly distinguish the long-term range set with the extreme points established within a short period between 1973 and 1976. The upside (blue dashed) is located at 36 barrels per ounce, and the downside (red dashed) of the range is 7 barrels per ounce.

The ratio fluctuated efficiently within this range for more than forty years until it was briefly pierced in 2016. Inside of the range, we can spot the period of a declining trend from 1986 until 2014, when the blue dotted resistance was broken to the upside. The further price action followed the classic scheme as the breakout changed to a pullback, and then the ratio rocketed to the upside touching the sky amid the negative oil price last year.

What goes up must come down. The following fast recovery of the oil price amid the stagnation of the gold price pushed the Gold-Oil ratio back in the range. Recently it almost reached the middle of the range, and the red dashed support around 18 barrels is in the crosshair. The breakdown of the latter would open the way to the bottom of the range at 7 barrels.

Let us assume that gold would hit the closest target of $2075, and the ratio will touch the support of 18 barrels, then the oil price could reach $115 ($2075/18)! I cannot imagine the oil price at the bottom of the ratio’s range of 7 barrels; $296 ($2075/7)?

This calculation doubts either the strong rally of gold past the all-time high or the strong appreciation of crude oil beyond the $115 mark. If we take the crude oil at $115, then the ratio at 7 barrels per ounce means the price of gold at $805; engaging calculations!

What are your thoughts about the impact of the Gold-Oil ratio?

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Please share your thoughts below as there are more combinations to consider.

Intelligent trades!

Aibek Burabayev Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.

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