The bond market has been on fire of late with two rate cuts now being priced into the market in 2019. While equities and energy have reacted harshly on expectations of slowing growth, the US dollar and gold, in particular, have been surprisingly mired in a low volatility coil.
The US Dollar made a push to finally, and definitively, break the 61.8% Fibonacci retracement at ~98.20, only to be once again rejected and sent to the rising support line, which has been tightening up into a rising wedge (which statistically breaks down 69% of the time). At last, the dollar broke down on a heavy red candle for the day.
Last Friday, gold rocketed out of its multi-month falling wedge. Silver followed through today, confirming the move and also breaking out of its falling wedge. According to Bulkowski, 90% of falling wedge breakouts move the length of the rise that led into them. In this case, that would bring gold to ~$1400 and silver to $16.
The bullish set up is textbook: long precious metals, short dollar.
The Gold:Silver ratio also retested the 2008 high at 90:1 last week. With bullish breakouts in metals and negative RSI divergence on the chart, it would appear that this move will get rejected and we should see a significant decline in the ratio.
Alternatively, a dollar recovery back into (and above) the rising wedge would be an extremely bullish (and surprising move) which we must make allowance for, albeit one of lower probability.
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Paperback: 128 pages
Author: Shelley Allen, M.A.Ed.
Publisher: Fibonacci Inc.; 1st edition (2019)