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The incredible strength of the US Dollar over the past 12+ months has put downward pricing pressure on Gold and Silver. I believe this downward pricing pressure could be muting any upside price advanced in Gold and Silver by as much as 20% to 30% or more.
The US Dollar has turned into the global “safe-haven” for international investors and foreign governments. Over the past 6 to 12 months, or more, the US Dollar has been the only fiat currency to see any strength and upward trend. All the other major global currency levels have fallen – some dramatically lower.
The EUR, GBP, AUD, CAD, and CHF have all fallen sharply over the past 6 to 12 months as the strength of the US Dollar and US Economy continued to surprise many. We’ve been calling this a “capital shift” that started back in 2015~2016 – when the 2016 US Election cycle began and China began to implement capital controls. At the same time, foreign nations such as Brazil and Venezuela began to shift into an economic abyss while the UK dealt with BREXIT negotiations. All of these external factors created an environment where the US Dollar became a global safe-haven for global investors – all of which were seeking US equities and US Dollars to hedge weakening foreign currencies and weak foreign stock market performance.
I think that the US Dollar strength, in combination with the continued foreign Gold acquisitions has amounted to a resolved “reversion” in Gold prices that could reflect a 10% to 20% price anomaly. In other words, the strength of the US Dollar has muted the advancing price of Gold by our estimates of 2x to 2.5x the strength of the US Dollar. Over the past 12 months, the US Dollar rallied from 89.42 (April 2018) to 97.92 (May 2019: current price). This reflects a 9.60% increase in the value of the US Dollar.
If my research is correct, the price of Gold should have rallied by about 18% to 26% from the April 2018 levels IF the US Dollar had not appreciated in value as it has. Therefore, the true price of Gold should be somewhere near $1600 (18% above April 2018 levels) to $1700 (26% above April 2018 levels) if we attempted to eliminate the “reversion effect” of the US Dollar strength.
We come to this conclusion by statistically analyzing the US Dollar strength after April 2018 and how Gold reacted to this strength – by falling over 12.5% from near $1350 to a level near $1170. That range of time reflected an 8% price advance in the US Dollar. Thus, a ratio of 1.5 to 1 has clearly been established within that move. More recently, from August 2018 till now, the US Dollar has rallied 1.47% while the price of Gold has rallied 8.87%. The current price of Gold is -5.60% below the April 2018 price level.
If we were to assume that the rally in the US Dollar deflated the price appreciation of Gold by nearly equal ratios, then we take the April 2018 price of Gold ($1350) and add the related price variances of Gold over this span (essentially reverting the price of Gold to April 2018 US Dollar levels : $1350 * 1.27) and we end up with $1714.50. This reflects a greater than 30% price anomaly from the current price of Gold.
Gold Futures – Goldchart by TradingView
We need to ask ourselves one simple question, what would it take for Precious Metals and the global stock markets to revert back to these expected price levels? Would it be a move away from the US Dollar? Would it be some shift in foreign currency valuations? Would it be a combination of factors that drive greater fear into the markets and reflect a US Dollar valuation decline? In the second part of this article, I will explore some possibilities and explain why I believe we are just days or weeks away from finding out exactly what will cause this price anomaly to revert along with my proprietary gold price cycle forecast.
I just highlighted the strength of the US Dollar in comparison to other foreign currencies and suggested this US Dollar strength may have created a “price anomaly” setup in Precious Metals – specifically Gold. I believe a very unique setup is happening in the global markets right now and that the price of Gold is substantially undervalued compared to risks that are present throughout the global economies. I believe the strength of the US Dollar has muted the upside potential of Gold by at least 20% to 30% over the past 12+ months and I believe a shift is taking place where Gold is starting to break these pricing constraints.
If the analysis is correct, I believe traders only have about 3~6+ weeks before we’ll find out why and what will cause this price anomaly to revert back to what I believe is “price normalcy”. The strength of the US Dollar, as well as the continued global “capital shift” where foreign investors are piling into the US stock market and US Dollar related investments, have continued to put incredible pricing pressures on Precious Metals. We believe this “shift” may be about to revert back to some levels of normalcy in term of Precious Metals pricing.
I believe a major Pennant/Flag formation is setting up in Gold where this price anomaly event will be resolved. This type of price anomaly reset, or reversion will prompt a massive upside price advance in Gold and Silver that will attempt to restore proper pricing levels to the Precious Metals commodities. I believe we are just weeks away from the completion of this Pennant/Flag apex/breakout event and believe the upside price targets identified align with a series of key events that are likely to unfold over the Summer months of 2019. Take a few minutes to read the recent three-part research post regarding these events and how they relate to the global stock/commodity markets here.
Our predictive modeling systems have been warning that a price advance in Gold and Silver will take place between April/May of 2019 and Aug/Sept or 2019. We are calling this the “initial upside price leg” because we believe this upside price move will be just the beginning of a much larger move higher for Precious Metals. We’ve highlighted some of the biggest concerns we currently have related to the global stock market price appreciation levels and the concerns related to the US Presidential Election cycle in precious articles – Please read them here :
- Proprietary Cycles Predict July Turning Point For Stock Market
- US Election Cycle Will Create Increased Volatility
We believe it is imperative to alert all investors/traders of this event and to attempt to allow all investors/traders to plan for what may become one of the biggest global stock market swings in recent history as well as one of the biggest moves in Precious Metals in history.
My proprietary cycle analysis and trade signals are suggesting a mild price recovery in Gold will prompt moderate upside pricing pressure over the next 10~20+ days. This aligns perfectly with our Pennant/Flag formation, see the previous chart. It would be expected that Gold prices would form a moderate price support level near $1270 before moving back up to the upper Pennant price channel, near $1295. Then, price should set up the “Apex Breakout” move – which will likely be a “washout-low” price rotation (somewhere near or below $1270) with a very quick reversal to the upside – breaking $1330 and rallying much higher. This type of rotation is very common and often prompts traders to jump into short positions on the “washout-low” formation before getting clobbered on the reversal/rally. Be prepared.
Lastly, we want to alert everyone to a chart we’ve been following that could become a determining factor for the future of the global stock market levels, the US Dollar and Precious Metals. The one thing we don’t want to see is a massive decline in yield in the 2 Year Treasuries. This would indicate failed growth expectations throughout the globe and, in particular, reflect concerns that the US markets could contract/decline in-line with further global market devaluations.
We’ve already been trying to warn investors that the US Presidential Election cycle will likely create a stalling price pattern in the US stock market. We’ve been warning, for the past 18 months, that Gold is setting up a massive bottom/breakout formation. We’ve recently highlighted the global concerns (Europe, China, US, and others) that may combine to create something like a “perfect storm” for currencies and the global equities markets. If that translates into “yield weakness” in the US Treasuries, think about how that would translate into the Precious Metals “reversion” that we are suggesting is only a few weeks away?
Chart courtesy of www.crescat.net
We strongly urge investors to pay very close attention to our research and prepare for this event. Yes, the Capital Shift event is still taking place and as long as nothing disrupts this shift, capital will continue to flow into the US Dollar and US Equities. Our concern is that the charts are telling us we are very near to the end of this event cycle and we are alerting all of our followers so they can prepare for this move. It may start out mildly – it may not. We do know that our predictive modeling systems are suggesting that July/August 2019 are on our radar for a major price rotation/event.
UNIQUE OPPORTUNITY
First, we typically see stocks sell-off and as the old saying goes, “Sell in May and Go Away!” which is what has been happening.
So what does this mean? It means we should start to see money flow into the safe-haven assets like the Utility sector, bonds, and most importantly precious metals. I anticipated this and our XLU utilities ETF taken with members has already hit our first profit target, and our VIX ETF trade also hit out 15% profit target and we the balance of it is still up 25% as of yesterday.
Second, my birthday was this month, and I think its time I open the doors for a once a year opportunity for everyone to get a gift that could have some considerable value in the future.
For May I am going to give away and ship out silver rounds to anyone who buys a 1-year, or 2-year subscription to my Wealth Trading Newsletter. You can upgrade to this longer-term subscription or if you are new, join one of these two plans listed below, and you will receive:
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I only have 25 silver rounds I’m giving away
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Happy May Everyone!
Chris Vermeulen
FREE MAGAZINE
See Page 59
US Election Cycle Will Create Increased Volatility
Throughout recent history, the US Presidential election cycle has prompted increased volatility and price consolidation. This happens because the US Presidential elections are really the biggest change of leadership on the planet for all economies and people. This year, the show is getting started a bit earlier than most…
Unless you were following our research, see below, and were already aware of the many warning signs we’ve been posting in our continued efforts to help traders and to help educate skilled investors, you were probably caught completely off guard by the news of near trade tariffs last Sunday, May 5th. Let’s face it, the short position in the VIX was an indication that institutional and retail investors had gone “all in” on this rally and had failed to even consider anything disrupting the narrow range price rally that had been in place over the past 45+ days. Well, all of that changed on Sunday night and many traders woke up Monday morning to the INDU down nearly -500 points.
The most incredible facet of this rotation was that the markets had already discounted the trade tariff news and began to rally almost immediately after the opening bell on Monday. Sure, we are not out of the woods at this time with the potential for continued price volatility and price rotation, but the fact that the US stock market was capable of rallying back from a very deep opening price shows just how resilient the US stock market and the economy really are. The issue this time, we feel, will be felt in the global market and in foreign currency rates. We’ll get into that more as we continue.
In case you missed our most recent research posts, we suggest you take a few minutes to review the following posts to bring you up to speed with our analysis/research. Reviewing these posts may help you to better understand the rest of this article and our expectations for the next 60 to 90 days.
March 31, 2019: Proprietary Cycles Predict July Turning Point for Stock Market
https://www.thetechnicaltraders.com/proprietary-cycles-predict-july-turning-point-for-stock-market/
April 10, 2019: Intra-Day Fibonacci Modeling Shows Volatility Is About To Spike
https://www.thetechnicaltraders.com/intra-day-fibonacci-modeling-shows-volatility-is-about-to-spike/
April 17, 2019: US Stock Markets Setting Up For Increased Volatility
https://www.thetechnicaltraders.com/us-stock-markets-setting-up-for-increased-volatility/
April 22, 2019: Prepare For Unknown Price Action As New Highs Are Reached
https://www.thetechnicaltraders.com/prepare-for-unknown-price-action-as-new-highs-are-reached/
April 28, 2019: Markets Are Setting Up a SHAKE-OUT – Be Prepared
https://www.thetechnicaltraders.com/markets-are-setting-up-a-shake-out-be-prepared/
Now that we’ve covered a bit of our past research, allow me to attempt to summarize things a bit.
_ First, we continue to expect new high prices to be established over the next 30+ days. Yes, volatility will be larger than it was 30 days ago, but we believe the “Shake-out” is just starting and we believe the US stock market will continue to push higher – at least for the next 3+ weeks.
_ Second, we are very cautious of the July/August 2019 Cycle Predictions, see above. We believe these cycles could be a warning of a major price trend change that prompts some type of “dynamic shift” in the global markets. Right now, it appears a “Shake-out” in China/Asia may be in play. But we believe a bigger “Shake-out” may be brewing somewhere else in the world.
_ Lastly, we believe any top formation in the US Stock market will result in a Pennant/Flag formation, rotational top formation, that will give traders ample time to reposition their trades and reduce risks.
Just a few days ago, we posted this research to help traders understand just how close the markets are to topping and what to expect – see below. We continue to believe this “Shake-out” is more about disrupting low volatility expectations and less about a major market top in the US stock market
April 30: How Close Are The Markets From Topping?
https://www.thetechnicaltraders.com/how-close-are-the-markets-from-topping/
The Chinese stock markets will likely continue to drop as new expectations are suddenly realized and trade issues, especially IP and future IP partnerships, become a major contention moving forward. Every step China takes, right now, is very fragile in terms of US expectations and the ability to show the world China is willing to become a responsible player in the technology field. If China fails to realize this, the world will clearly see that China’s intention is to take as much as they can from global technology leaders while stuffing their pockets full of foreign cash – it will not end well.
The Shockwave that has just started to unfold across the global stock market/financial world is that trade, economic expectations, and currency valuations will continue to “revalue” to address these ongoing concerns until some formal resolution works itself into place. In the meantime, any new issues that become present could further complicate these “revaluation” efforts. The concert just started, folks. We have a long way to go before this is all over with.
This Weekly YM chart showing our proprietary Fibonacci price modeling system is suggesting we have a “long way to go” before we could consider any downside price rotation a major risk. The recent price highs in this YM chart have prompted a Bearish Fibonacci Trigger Price near the December 2018 lows (see the RED line near the $21,450 level). You might be asking, “why so low?”. This “learning modeling system” attempts to learn from price and attempts to identify where key price levels are that MUST be reached for a confirmed trend change. As price has continued to rotate within a very wide range over the past 7+ months, the Fibonacci modeling system is suggesting that price could fall all the way back to near the December lows WITHOUT triggering a new “long term” bearish price trend.
In other words, the current price range that would constitute “normal price volatility” is anywhere between $21,450 and $26,950. When we said to expect increased volatility, we really meant it. This is a $5,500 range in the YM that could become a “normal volatility zone”.
The NQ Weekly chart, on the other hand, is providing us a much clearer Bearish Fibonacci Trigger level, near $7,393. Once the price is able to close below this level, then we would consider the NQ entering a new Bearish trend as long as price stays below the $7,393 level. If it was to rally back above this level, then the trigger is negated as long as it stays above the trigger level.
Pay very close attention to the YELLOW price channels that originate back in early 2018. Those levels are likely to play a very important role in going forward as price attempts to establish new price ranges/channels throughout this expected price rotation and volatility.
Lastly, we’ve been warning that the Financial Sector could come under some intense pressures over the next 5 to 16+ months as all of this “Shockwave” plays out. The reason we believe the Financial sector is vulnerable to this crazy volatility is that the exposure to multiple levels of capital risk could complicate the long-term earnings capabilities of this sector. Almost all of these firms are involved in Personal, Corporate/Business, Real Estate, Trade, Global financing, Currency, and Bond related business ventures. These firms are not remotely immune to any “Shockwave” – they are located right in the Bullseye/Target zone.
We believe the XLF may come under increased pressure over the next 3~6+ weeks as the Shockwave event continues to unfold. We believe issues with Personal/Consumer credit will be the first sign of a Shockwave event and further pressures from Corporate/Business/Global/Currencies would likely be the second shoe to drop over the next 8+ months. We believe a rotation in the XLF to near $25 is very likely over the next 3~6 months and that this move could be the result of extended risk factors originating from the “Shockwave event” we’ve been suggesting is currently unfolding.
Skilled traders should be watching technology stocks, the NASDAQ, the INDU, the Financial Sector and commodity prices over the next 4+ months for any signs that the Shockwave event is increasing in amplitude. Additionally, pay very close attention to how currencies are moving and where the US Dollar is moving in relation to other currencies. Gold and Silver should also be on your radar over the next few months as well. Lastly, prepare for the major cycle event in July/August 2019.
The past four tradings sessions with volatility has kept us busy check out our most recent index trades on the SP500
Our advice continues to be to look for opportunities as the volatility increases and continue to expect an upside price bias in the US stock market – at least until we have any strong evidence that price trend has changed. Don’t buy into the doom-sayers just yet. In our opinion, this US upside price move is not over yet.
If you want to become a technical trader and pull money from the markets during times when most others cannot be sure to join the Wealth Trading Newsletter today. Plus, for a few days only I’m giving away and shipping Free Silver Rounds to subscribers who join our select membership levels.
Chris Vermeulen
www.TheTechnicalTraders.com