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The US Elections, US Dollar, Stocks, and Gold


The decline in gold is likely not over but relatively close to being over.

Now, let us have a look at the general stock market's long-term picture.

While stocks have failed to hold above their 2008 highs, they have not declined below the rising support line (shown in red). It was created by the 2011 and 2012 lows, which means that it is a fairly strong support line and likely to hold at least until Election Day. In short, the short-term downside potential appears very limited.

What happens to the stock market after the elections will to a considerable extent depend on who wins.

Let's move on to Correlation Matrix to see whether the situation on the currency and the general stock market will influence gold and other precious metals.

The Correlation Matrix is a tool which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector. It's interesting to note this week that the recent short-term correlations between the precious metals and the USD Index have been almost non-existent. The previous significant relationship is now neutral as the precious metals' prices actually declined recently without a rally in the USD Index.

This is not a sign of strength but rather a sign of weakness in the precious metals themselves. Their correlation with the general stock market is still fairly strong, so it seems that the limited downside potential in the stock market likely applies to the metals as well.

Summing up, the short-term outlook for the USD Index is for a rally but likely not a big one. The opposite outlook holds for the general stock market. Although the short-term trend is down, the medium-term support line is close, so significant declines are not likely, especially just before the elections. The decline in gold is likely not over but relatively close to being over.

Thank you for reading. Have a great and profitable week!

For the full version of this essay and more, visit Sunshine Profits' website.

Twitter: @SunshineProfits
No positions in stocks mentioned.
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