John: Today we have a 4-year weekly comparative chart showing the U.S. Dollar Index and the CDNX. In this case we’re not looking for a direct relationship between them but merely an an opportunity to view both on the same chart.
With regard to relationships I believe we should view it this way: The CDNX and Gold have a direct relationship. Gold and the U.S. Dollar generally have an inverse relationship, thus we can say the CDNX typically varies inversely with the U.S. Dollar Index. The CDNX has a direct association with the price of Gold but an indirect association with the U.S. Dollar Index.
Looking at the chart we see that the main focus is the U.S. Dollar in candle format and all indicators are referenced to the Dollar Index. We see that today’s close is within the top support band (2 green horizontal parallel lines), thus the Dollar Index has made partial penetration of support. The bottom of this band is at the 74 level. From a high in June, 2010, the U.S. Dollar declined in a 5-wave pattern and has now reached the pivotal support of November, 2009. If the 74 level is penetrated it could fall to the top of the next support band at 72. The next 2 weeks could be critical for the greenback which in turn will have an impact on the price of Gold and the CDNX.
Looking at the indicators ($U.S. Dollar):
The RSI at 20% has room to fall to the RSI support level of 10.
The Slow Stochastics (SS) is in deep oversold territory but as we can see, between April and December, 2009, it can remain oversold for months.
The ADX trend indicator shows that the -DI (red line) at 28 is climbing and above the +DI (green line) at 12 which is falling. The ADX (black line) trend strength indicator at 26 is climbing rapidly, showing the strength of the decline is increasing.
The outlook for the U.S. Dollar Index is quite bearish, at least for the near term. Therefore, if the greenback is bearish, this should provide an excellent opportunity for Gold and the CDNX to move higher. The chart shows the CDNX near resistance and if the U.S. Dollar Index continues to fall, I expect it will try again to break the resistance at 2465.
In the past few weeks, correlation between CDNX and junior gold has been weak. I’ve seen CDNX recover nicely after the correction in March but many junior gold has not participated in the rally. There is definitely disconnect between Gold, CDNX, and junior gold.
Silver has gained about 30% in that time frame. I wouldn’t be surprised to see a pull back in Silver.
Comment by Bruce — April 15, 2011 @ 10:32 am