GDXJ/Gold Ratio

This key predictive ratio continues to struggle when it comes to gaining upside traction. It remains below the starting level of the year.

The HUI/Gold ratio looks a bit better but certainly nothing to write home about.

Consistent with the weak-showing in this ratio, gold is struggling to breach overhead resistance on its chart emerging near $1175 and extending up to the old familiar $1180 level.

The ADX has turned down indicating a pause in the down-trending move lower. That big up day from yesterday and the subsequent upside follow through from today’s session were enough to cause an interruption in the downtrend. Bears still remain in control of the market at this point as the -DMI (Negative Directional Indicator) remains above the +DMI (Positive Directional Indicator).

The RSI is moving higher from out of oversold territory.

I am also seeing that inflation expectations continue to remain quite weak as they are barely above a 5 year low.

One can say the same thing about gold as they can say about crude oil. If the inflationary pressures from rising crude oil/energy are missing, and if the TIPS spread is continuing to meander in 5 year low territory, why buy gold? There is no inflation and no signs of an overheating economy, at least as far as the market is concerned at this point. It then becomes a matter of holding gold for insurance reasons against falling interest rates as the opportunity cost to hold an asset that throws off no yield is minimized.

I am simply unsure how high such a sentiment can carry the metal at this point. Obviously the gold shares are having doubts as well. The onus will therefore be firmly on the shoulders of the bulls to PROVE that they can take the metal higher. So far, they have not been able to do that. The FOMC statement saved them yesterday as the metal was threatening to breach downside chart support but the FOMC, terrified of deflation, decided to try to talk the Dollar down and commodities up as if that could somehow engender the much-longed for 2% annual inflation rate that they are desperately seeking to achieve.

With that mindset, the last thing the Fed wants to see is an imploding gold price. GATA and the other “Gold is always manipulated all the time” crowd has no idea that they are barking up the wrong tree. The Fed is terrified of deflation, not a collapsing Dollar, which is what is necessary to see a substantially higher gold price.

Based on what I am currently seeing at this time, it looks as if the best the Fed could do is to put a temporary floor under the gold price and a temporary cap on the Dollar. As to how long either or both will hold, that is anyone’s guess. Perhaps until we get the next payrolls report?

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Courtesy of Trader Dan http://traderdan.com/