There was no new intraday low in the USD Index yesterday, but we saw a new weekly low in terms of closing prices. The PMs reacted by moving higher, but the move was not spectacular. Moreover, both metals moved lower in today’s pre-market trading. What can we infer from this combination of factors? Quite a lot.

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In yesterday’s Alert, we warned about the likely reversal in the USD Index and we explained that the implications for gold, silver, and mining stocks were different than many expected them to be. And so, we have indeed seen a reversal in the USDX and the PMs have already declined. They didn’t even wait for the U.S. currency to rally – the reversal was enough to trigger declines. It tells us something very, very important.

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The price changes in the USD Index are one of the key determinants of the price moves in the precious metals sector – at least in the short run. Naturally, the price of gold is going to over- or underperform from time to time and the latter was one of the reasons that contributed to our significant profits on trading positions, but overall, when the USD Index is flashing an important signal, precious metals investors should pay attention to it. Yesterday, the value of the USD Index closed below the neck level of the reverse head-and-shoulders pattern, which seems to be a sell signal for the USD Index, and thus a buy signal for the PMs. Is it really the case?

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Gold, silver and mining stocks moved higher on Friday and the USD Index declined. The move was particularly visible in the case of gold, so it might appear that the bottom in the yellow metal is already in. Especially given the extremely low number of positions held by Large Speculators as shown by the latest CoT report. Is it?

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