January 11, 2021 - (Gold Market Wire) - There is little argument that Gold captured a US Dollar bottom fairly well last week. The plunge in prices has been attributed to many things, including love for Bitcoin, closing out of stock market positions, and general "reassurance" that the US political process is finally settling down. While we remain skeptical of all of those, the US Dollar smack against the technical support of 1.22-1.23 is the most plausible reason for Gold's sell-off.

The reality is/was that the whole planet was screaming that the US Dollar was finished, forever, and is never coming back. Well, the market likes to fade such exuberance and hubris. We've been hearing that the US Dollar is a "fatally flawed currency" since... well, since a very long time. We won't deny the break of the line in the chart below... but honestly, is this the chart of a currency in a death plunge??? For 12 year+???

..and pretty much on the money...

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Yes, we could be saying that ALL currencies are in trouble, and increasingly that looks likely. But that doesn't mean the US Dollar isn't still with us today. And for all of those who think that a war is in the making in the South China sea, exactly what do you think the regional economic powers of South Korea and Japan will do with their capital as the war drum beats louder? Buy Euros? Buy Gold? Perhaps its time for some refreshing coffee.

So, Gold anticipated a possible short-term bottom in the US Dollar and sold off, but as we have been wont to state as of late, we're not die-hard inverse correlation afficionados. Actually we have an ever increasing open mind about just those sort of things. Yes, the correlation trade worked in December - but that doesn't mean it always works, day to day. Recently we've laid out several times when that "inverse monetary proxy" theory falls flat in the trading ring.

In the short-term, we've seen a big panic out of Gold, we cut the position down to size, but we stayed in the game, and right now we are comfortable in adding to it. We are smelling a flush out here:

And so we are inclined to take on some length here. The length we bailed on roughly $40 higher. It's a good risk/reward in a chaotic environment.

Our downtrend signaled the buying stampede in Gold and the Dollar bottom touched on its reversal. Right now, the indicator is losing its potency.

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...and to that pile we also add the 50 and 100 day moving averages, which are really no longer strong points for indicating the market. While the Dollar rallly may hold, we believe that the chart flushing shows that length for the trading book is in order.

Correlation trading is not a ticket to riches.