Gold Priced in Euros, Important Dollar Price Resistance Levels

Gold priced in euros has surged since 12-21-2014, moving from €966.20 to €1,107.20, a move of €141.00 or 14.59%.

On the chart you can see the interesting dynamics:

A - The Dollar Index (DXY) has surged to $92.64, breaking above an important long-term resistance level of $92.63;

B -  Gold priced in euros has surged as the euro has plunged to €1.159, noted at D;

C - Despite the surging dollar (A), gold has moved higher to $1,276.90 (C) on the Comex (GC1!).
 

As seen above, the DXY managed a weekly close just above the important $92.63 level, finishing at $92.64. This isn't as impressive looking until you check it out as a weekly chart.

The last time the DXY reached $92.63 was November of 2005. The last time that the DXY was above $92.63 was in October 2003.

So, the DXY has just broken out of an over 11-year old channel.

We find ourselves in a situation where both gold priced in dollars and the dollar, as represented by the U.S. Dollar Index (of which a significant portion of the weighting is in euros) are moving higher at the same time. Martin Armstrong of Armstrong Economics provides an excellent explanation of what is happening:

We are in a very fluid period, which can be confusing, yet it is important to comprehend that NOTHING but NOTHING is ever PERMANENT. On the one hand, gold will eventually decline for its final low on the benchmarks. The only thing that will call that into question is a Monthly Closing ABOVE 1350. Yet, gold is rising WITH the dollar.

This paradox centers around a simple game – who has the confidence now.  Since the confidence is fleeing Euroland, then capital and confidence will move into dollar and Swiss franc. This means that gold will rise WITH the dollar and franc as a HEDGE against the Euro.

However, we will eventually reach that point more-likely-than-not on the benchmarks where the shift in confidence will take place and gold will then rise AGAINST the dollar. After the confidence has crashed against everyone else, then it will turn against the USA. This is when we will thereafter see the next solution as a one-world reserve currency.

Armstrong's observation that a monthly close of gold above $1,350.00 is the only thing that will call into question an eventual decline of gold to its final low on the benchmarks is interesting in light of the following chart.

Why is Armstrong's observation about a $1,350.00 monthly gold price close interesting? If you look at the above chart you will see that the gold price has traded within a Schiff Pitchfork for around a year. What is it going to take for the gold price to break out of the descending pitchfork and possibly move higher? Currently the gold price would need to move up to $1,350.00, or slightly above.

Previously I wrote about how gold has just entered the oversold range as indicated by RSI. Although gold can continue to remain oversold for a while longer, at some point I expect it to turn lower. The logical point, just looking at the pitchfork in the chart above, would be around $1,350.00.

If we left our analysis off here, it would be interesting, but let's add one more element. While the above chart has a Schiff Pitchfork, which acts to make the pitchfork descend less steeply, we can add a traditional Andrews' Pitchfork with a price trigger line for comparison.

We now have two pitchforks on the same chart - the darker colored one is the shallower Schiff Pitchfork. The second pitchfork with the steeper descent is the traditional Andrews' Pitchfork.

Concentrating on the Andrews' Pitchfork, you can see the gold price has made several attempts to break above the descending pitchfork, seemingly having more success after breaking above the top parallel channel back in November of last year.

However, what the gold price has not yet succeeded in doing is breaking above the black descending price trigger line that intersects the far right of the chart near $1,320.00.

Using information from both pitchforks and the Fibonacci levels yields some important gold price resistance levels to keep an eye on:

1) $1,295.40, based on the 0.236 Fib Retracement level;

2) Above $1,320.00-$1,330.00 (depending on if the level is tested sooner or later), based on the price trigger line;

3) $1,350.00 based on the upper parallel line of the Schiff Pitchfork;

4) $1,392.60 - the zero Fib Retracment level.

Bottom Line: The gold price has been gathering steam both in terms of the euro and dollar. However, gold priced in dollars is nearing some significant levels which will determine whether the gold price presses higher or reverses.