“Garner believes we’ve now reached the point where so many traders have jumped on board this negative correlation bandwagon that it’s pushed both gold and the greenback to overextended and, therefore, precarious levels,” he said. “If the dollar can keep falling, she thinks gold can keep rising, but that has become a mighty big if.” - James Cramer, Host Mad Money
While COVID-related concerns have certainly provided fundamental arguments for safe-haven buying in assets such as gold and Treasuries. It is also a dollar story. As the government continues to print money to combat coronavirus, the dollar devaluation is propping up commodities; particularly the metals. Oddly, the dollar and gold traveled in the same general direction following the March volatility as markets prepared for COVID uncertainty. However, in early June the two assets began taking on a more normal relationship of negative correlation; active traders and algos seem to have embraced this negative correlation pushing prices to overextended levels in both gold and the dollar. Thus, the direction of gold going forward will largely depend on what the dollar index does with nearby support.
The US dollar faces a major crossroads near 93.00; this figure represents trendline support which comes at a time in which technical oscillators suggest the greenback is becoming oversold. For instance, on a daily chart, both the RSI (Relative Strength Index) and Williams %R are suggesting the selling could be a little overdone for now. Yet, as previously mentioned, although 93.00 feels low at the moment, in the past it had been seen as elevated. If the greenback falls below 93.00 we should see the 2018 lows of 88.00 which would likely give gold a boost to the next resistance level. In short, what the dollar does here will likely determine whether gold peaks somewhere between $1,980 to $2,000 or somewhere between $2,250 and $2,300 (assuming we are right about a near-term top of course).