I wanted to provide an update to my "The Coming Gold Washout" article I wrote back at the end of January. It has taken quite a while, but gold and the dollar are finally very close to the levels I identified in that article.
Overall, I have been surprised by gold's resilience so far this year. I was able to make some good money on a nice tactical short heading into the Fed's rate hike, capitalizing on the rate hike odds rapidly rising. Just the same, I missed the recent rally without having a tactical long trade on, something that I wish I would have foreseen and played.
With all of that said, to me it looks like there is a possible setup for a bigger fall in gold coming up pretty soon, if price action responds to the technicals the way I anticipate.
First lets take a look at the dollar.
As you can see on the chart, price *could* enter into a trifecta of my demand zone, the 200 DMA, and the up trend line. If this happens, I would expect a strong move to the upside for the dollar, which should pressure the gold price.
Now lets take a look at gold via GLD.
Here, we have a very similar scenario where price is staring down a trifecta of my personally drawn supply zone (these zones go back to January), the 200 DMA, and a down trend line. It is worth noting that the trend line on both charts goes back to last summer.
One thing to obviously note is that if these seemingly very strong areas on the charts break and the dollar breaks its support with gold breaking its resistance, look out and go long. My personal expectation is that these levels hold and that is the trade I will put on. As a structural, secular, technical, and fundamental dollar bull...I will be betting on the dollar bull to resume strongly from this area if we enter it.
This will be fun to watch in the days and weeks ahead. If I can take this gold short, I would look to exit when gold neared its up trend line pictured on the chart.