Buy Gold Now? Read This First…
Don’t Buy Gold Until You Read This…
Well folks, the US Dollar is on a rampage…
The dollar index added 1.33% on Tuesday and another 0.10% on Wednesday as worries mounted over the worsening Greek debt situation. According to various reports, Greece is still at odds with the International Monetary Fund (IMF) and European Central Bank (ECB).
Keep in mind, the highly indebted nation is scheduled to make a $329 million loan repayment on June 5th– the first of four payments due in coming months.
But according to a statement by the Greek interior minister this past weekend, the funds are not available and “will not be given”.
Not surprisingly, the uncertainty has the euro diving towards price lows seen in April. As you may remember, we discussed how to profit from this situation just a few days ago.
No doubt about it, a bullish position in the PowerShares DB US Dollar Bullish $UUP is paying off nicely right now.
But today we’re looking at how this situation is affecting gold…
As you may know, it has been yet another lackluster start of the year for the yellow metal. Gold is down 1.4% in the past month, while trading flat year-to-date.
Not at all what gold bulls have been hoping for.
And given the metal’s recent performance vs. the US Dollar, I’m led to believe a substantial downturn is just around the corner.
Let me explain…
First of all, the US Dollar index lost just over 6% in the recent April/May downturn.
See for yourself…
As you can see from the blue line, the greenback lost around 6.5% from April 13th to May 17th. But at the same time, gold was only able to tack on a rather measly gain of 1.5%.
That’s not the type of relative performance you need to see if you’re bullish of gold.
Fact is, we should have seen a healthy gold upturn of at least 5% during the dollar downturn. Such a scenario would have pushed the yellow metal from $1,200 an ounce up to $1,260.
Instead, gold managed a meager rally to the $1,230 area.
What does this lackluster performance mean?
To put is simply, investors just aren’t that interested in gold right now. With the US economy relatively strong and inflation benign, there’s little to look forward to from a bullish standpoint.
And now that the US Dollar is once again turning higher, the yellow metal is back on the defensive. As you can see in the chart above, gold is down just over 2% in the past few days.
Here’s the deal…
Should the US Dollar break to new 2015 highs in coming weeks, we’ll likely see gold fall to March 2015 lows at the $1,150 area- that’s $40 an ounce lower than current prices.
This scenario is entirely possible, not only due to the situation in Europe, but also due to the fact the US Federal Reserve is on the cusp of raising interest rates.
In a worst-case scenario, gold could break below the November 2014 lows at $1,140 should the Fed raise rates more than expected.
If the metal loses the $1,140 technical support area, we could be in for a wildly bearish ride to the $1,000 an ounce level.
What’s the best-case scenario for gold?
If the yellow metal can keep trading in the current range around $1,200 while the dollar continues higher, I would consider that a big win for gold bulls.
Trade accordingly.
Until Next Time,
Justin Bennett
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.
Category: Gold, Precious Metals
