PhaseTrader Indicators

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Philip Russell
5 years ago
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2 Gold posted its worst week in more than 3 years as the dollar index reached a high of 97. On Friday 9/30, Dec gold futures closed at $1317; one week later on 10/7, they fell to $1252 down 5% The price has begun to stabilize. On Monday the Dollar Index reached 96.93, its highest level since late July; at the same time Dec gold futures settled the session at $ /ounce, up 0.67% on the day and above a key support level ($1250/ounce). Traders are beginning to settle on Clinton as the winner of the Presidential election. This view accelerated when the Trump audiotape surfaced last week. Clinton is viewed as the Wall Street favorite and more positive for the dollar. In basic terms, changing the party in office is destabilizing to the dollar. This effect causes the dollar to rally whenever Trump stumbles and Clinton pulls ahead. Last week s dollar rally and gold collapse represented a political prediction from financial markets. The strong dollar helps set the stage for a Fed rate hike immediately after the Presidential election at the December meeting. Although Fed Funds futures still place the probability of December increase at just over 50%, most market watchers believe the Fed will begin raising rates in the next couple of months. A broader, more sophisticated view includes the effects of falling GDP and general economic weakness. Raising rates in this environment will be difficult even damaging. This view caps the strength of the dollar and sets a floor for gold. Large institutional investors will flood into gold when the price finally bottoms. Election effects are always temporary. Realization that the US will likely end up with a divided government in January will cause the dollar to weaken, adding additional strength to gold, but for now the price remains unstable and the correction is probably not over.

Non-resetting phase rationalizes most peaks and valleys on the gold chart. For example, the 6/23 low (arrow) lines up closely with other lows on the indicator chart (e.g. 9/16) but not on the price chart.

3 Non-resetting phase rationalizes most peaks and valleys on the gold chart. For example, the 6/23 low (arrow) lines up closely with other lows on the indicator chart (e.g. 9/16) but not on the price chart. We can use non-resetting phase to establish an important support level that was breached this week. Gold stabilized near the more significant 5/29 low on the indicator trace /23 9/16

Inverted Smart_Money follows gold closely a signal of a healthy market. Inverting the indicator causes it to rise when institutional traders sell and to fall when they buy.

4 Inverted Smart_Money follows gold closely a signal of a healthy market. Inverting the indicator causes it to rise when institutional traders sell and to fall when they buy. Institutional traders tend to sell as the underlying price rises toward a peak and to buy as the price declines. In early August, the indicator diverged to the downside (1), meaning that institutional investors were not selling the rally a very positive sign. They began selling steadily through late September (2) then, as the price fell, they began buying (3). Most recently, the indicator has diverged to the upside, meaning that smart money investors are not completely buying this dip because they believe the selloff is not over (4)

20161011-5 Yen gold has fallen 8.5% since July. This decline is important because carry trades fund gold and the yen has been strengthening since January.

5 Yen gold has fallen 8.5% since July. This decline is important because carry trades fund gold and the yen has been strengthening since January. Continued strengthening of the yen or weakening of gold will ultimately lead to another sharp selloff. A critical support level is marked on the non-resetting phase chart (bottom right). Note that the July peak is lower than the March peak in absolute price terms but higher on nonresetting phase (1-2) a sign that gold was overbought. 1 2

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PhaseTrader Indicators

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