Gold Nearing Strongest Buy Signal In Four Months

Gold is nearing its strongest buy signal in four months as the U.S. dollar eases off a rally that’s carried the greenback to its highest point since early January. According to the 14-day relative strength index (RSI), gold was at its most oversold level since October 2022 this week, indicating it may be time to consider buying in anticipation of mean reversion.

As I’ve shown you many times in the past, gold and the dollar share an inverse relationship, since the precious metal is priced internationally in the greenback. When the dollar is strong, it may be time to accumulate gold. Conversely, when the dollar begins to cool, it may be time to take some profits.

The Economics Of Underwear

Gold is currently about 6% off its 2023 high of just under $1,960 an ounce, under pressure from the dollar, which has made gains against a basket of world currencies in recent days on economic data that all but guarantees additional rate hikes. Unemployment sits at 3.4%, the lowest reading in more than half a century, giving the Federal Reserve the go-ahead to continue its fight against inflation.

This week, the consumer price index (CPI) showed that inflation is still running hotter than expected.

Consumer prices rose 0.5% between December and January, up from an increase of 0.1% in the November-to-December period. Some of the items and services that jumped the most in price in January were utility gas services, eggs, breakfast sausage and ham, instant coffee and—just in time for tax season—tax return preparation fees.