Dollar Index: On January 26, 2022 the March 2022 Dollar Index generated short and intermediate term buy signals. This reversed the short and intermediate term sell signals of January 12, 2022.
On January 28, the March dollar Index made a new high the move at 97.44, the highest level since the week of June 29, 2020. As of Friday, DXY is 7.38% higher than it was one year ago. Additionally, it remains down only 0.78% from two years ago and lower by 2.53% at this time five years ago.
The specter of increasing interest rates are going to continue to support a higher dollar. Although the weekly moving averages remain in a bearish set-up, it appears that the 50 week MA of 93.08 will cross above the 100 week MA of 93.97 in the near future. This would be a positive change and would confirm the upward trajectory of prices. In our note of two weeks ago the 50 week MA stood at 92.43 and the 100 week MA came in at 94.08. In short, the 50 week MA has increased by approximately a half a point in two weeks. It appears that a 50 week MA cross above the 100 week MA is baked in.
The latest Commitment Of Traders Report (January 25) reveal that “Leveraged Funds” hold 16,127 contracts long and 4,589 contracts short. This is a substantial change from the report of two weeks ago when “Leveraged Funds” held 14,533 contracts long and 9,981 contracts short.
Gold: On January 27, February and April 2022 New York gold generated short and intermediate term sell signals.
Although gold has been trading sideways since mid-2021, it appears that the path of least resistance is turning lower. The daily and weekly moving averages are in a bearish set-up with the 100 day MA of $1,796 (rounded) trading below the 200 MA of 1,806. Worse yet, the 50 week MA of $1,793 (rounded) is trading below the 100 week MA of 1,807. The toll of impending higher interest rates is serving to weaken gold prices while a strengthening the dollar places additional downward pressure on gold. For the month of January 2022 (through January 28) gold is down 2.26%.
The weekly gold chart also reveals longer term weakness with a series of lower highs after making its all-time high of $2,089 during August 2020. Subsequently, gold has made the following lower highs (rounded): $1,966 (November 2020), 1,919 (May 2021), 1,879 (November 2021).
The latest Commitment of Traders Report (January 25) reveals that in the Managed Money category they hold 140,640 contracts long, up 20,833 from the previous week and 39,265 contracts short, down 8,749 from the previous report. The hefty long position of “Managed Money” will add a considerable selling pressure to gold as disappointed longs liquidate.
In the current environment of a higher dollar, increasing interest rates and a dismal technical picture, the prudent stance is to be on the sidelines. Gold needs a much better technical picture before it can regain its luster.
To read about my analytical process for stocks, visit online booksellers, Amazon or Barnes & Noble and enter the title “How I Trade Stocks” by Garry Stern.