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Gold's Relationship With US Currency and Stocks


The short-term correlation between the metals and the USD Index is negative at this time and has been very weak recently.

If the buyers manage to push the USD Index higher, we might see an increase to the June top or even to the rising resistance line based on the May high and June peak before another pause is seen. However, taking a look at the long-term charts, we see that the next significant resistance is currently close to 86 (86.4) -- the declining red line.

Consequently, from the short-term perspective, the recent decline still seems to be a countertrend bounce. It means that we could see another rally soon, especially when we factor in the cyclical turning point, which is just around the corner. Taking a look at medium-term and long-term charts, both outlooks for the dollar remain bullish. This is a bearish piece of information for metals and miners.

Once we know the current situation in the US currency, let's find out what happened during the last several days and check the current situation in stocks. To begin, let's take a look at the long-term S&P 500 (INDEXSP:.INX) chart.

Click to enlarge

In recent days, stocks moved up once again and broke above the May top. At this moment, the breakout is still not invalidated, but from this perspective, we see that the recent decline was likely nothing more than another correction and the outlook continues to be bullish.

We would prefer to see two more weekly closes before saying that another upswing is very probable. It is likely at this time but not to any great extent.

Let's check if the short-time outlook is also bullish.

During the past week, the S&P 500 has continued its rally as expected. Prices climbed up to new historical highs on Thursday. The S&P 500 gained 0.5%, after reaching a daily high at 1,693.12. The breakout above the May 22 local top is a positive sign, but some short-term uncertainty cannot be excluded here.
No positions in stocks mentioned.
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