The story in global markets since last summer has undoubtedly been the crash of the commodity complex – including precious metals, and the monstrous rally in the US Dollar. There is no coincidence that crude oil (-50% in 6 months) collapsed when the dollar began its rally.
With the end of quantitative easing last year in the US whilst the rest of the world remained sluggish, people flooded to the US dollar. An increase was not a surprise but the sheer speed and size of the rise caught global markets off guard .
Putting the recent U.S. dollar uptrend in perspective provides some interesting insights:
- First, the steepness of the recent rise is quite unusual – it is a parabolic rally.
- Second, the dollar is currently severely overbought on the weekly charts, as measured by the RSI momentum indicator. In fact, it has not been in such an overbought condition since 1985!
- Third, and foremost, the dollar facing stiffer resistance at current levels as indicated by the red boxed region.
The main point to remember is that the US dollar could go higher from here, but the rally has already started coming off suggesting a correction may be starting. Also, no matter how impressive the recent rally has been, as the chart above suggests, its strength has been historic.
These factors give the indication that the pressure on commodities, including the precious metals complex, will continue to ease further. One side note on this point: don’t misconstrue inevitable with imminent, timing has always been a challenge.
I suspect that 2015 will show a bottom occurred in precious metals last year – notably for Gold and Silver. The US Dollar already has or will soon peak this year, which will add volatility and upward pressure for precious metals prices.