Gold is supposed to provide a safe haven from stormy markets. A place that skittish investors can turn for comfort in the face of uncertainty. When volatility VIX, +1.13% spikes and stocks begin to unravel, it’s the shiny stuff’s time to shine.
In other words, now. This climate is (should be) time for gold bugs to rejoice.
So why aren’t they? Even as October delivered a gut shot to equities, gold GCZ8, +0.31% hardly drew a buyer’s glance. In fact, it’s off more than 11% from April highs as a strengthening dollar DXY, +0.15% has kept a lid on any notable momentum.
But, according to Chris Kimble of the Kimble Charting Solutions blog, there’s hope for gold buyers yet, and the key, from a technical perspective, lies in this chart:
Kimble says the U.S. Dollar/Gold ratio is one of his favorite indicators when it comes to predicting the direction of the precious metal, and he says it could be about to signal a pop in prices.
“We can see that the ratio climbed higher from late 2011 to early 2016,” he said, referring to the chart. “This wreaked havoc on gold prices. Since peaking in early 2016, the ratio has formed a broad declining channel (pink shaded area). Each swing lower has provided a tailwind for gold prices, while each counter-swing higher has been a headwind.”
Kimple explains that, after the ratio tested the bottom of the channel earlier this year, it has been reversing higher and gathering strength.
“This move back toward the top of the channel has kept gold prices subdued this year,” he said. “Each of the prior highs has coincided with momentum peaks (top box of the chart). As you can see, momentum looks to have peaked once again… and may be rolling over.
At last check, gold prices, which have mostly been rangebound for years, were inching higher Thursday, shaking off pressure from a stronger dollar to hold on to a week-to-date gain. The dollar has gotten a lift in recent sessions amid expectations for more U.S. interest rate hikes.
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