Gold Sector Flashes Red Light As Dollar Rallies
The US Dollar Index is rallying above 94.50 this morning following a very strong retail sales report. The US dollar has formed a V-bottom since briefly falling below 92 earlier in this month – a major test near the ~95 level awaits and will offer a strong indication as to how serious this rebound in the dollar may be:
US Dollar Index (Daily)
Meanwhile, the gold miners (GDX) continue to trade in a volatile range between roughly $23.50 on the downside and $25.50 on the upside:
- A market more than doubles in the span of less than 4 months.
- Sentiment turns wildly positive and retail/speculative funds flow into the space to chase the move higher.
- Price begins to make lower highs amid extremely volatile day-to-day price action.
- Volume and dollar-weighted volume is well above the multi-year average as increased participation leads to churning and distribution.
- The ownership in the sector transitions from stronger hands to weaker hands (those who are looking to profit from the next 10% of upside) which makes the sector much more susceptible to a downside correction once investors’ perceptions change ever so slightly.