Gold has moved to new highs while the dollar has ended its rally and began to sink again. This graph of gold prices shows a number of important features. First, gold went to 1,000 by March of this year - this coincided with the chaotic situation in the Stock Market. Then from March to September, gold was doing a wedge of lower highs and higher lows. The Gold Market gave a buy signal in March, as the 50 DMA moved decisively above the 300 DMA. Gold broke out decisively from its trading range in Sptember. Since then we see a pattern of two weeks rising prices and two weeks correcting. The slope of the new trading range is orderly so far with gold prices rising about 80 dollars/up phase and dropping about 30 dollars in the correcting phase. We will soon see if this pattern will continue. If it does, gold will top out at 1120 in this bump.
The driving force for the current rally is the drop in the dollar. The premium for gold miners has dropped and their correction was steeper, so even though gold is hitting new highs, gold mining stocks are not.
The oversold/undersold graph at the top shows that gold goes to over bough conditions during the up hase and returns to neutral during the correction. This, together with the positive MACD tells us that the rally has legs.
Now look at the US Dollar. Up till March, cash was scarce, so the dollar increased in value. This was entirely due to the defletion induced by the FED in Sep 2008. The Stock Market began to rally as the dollar began to drop and continues till this day. Taking down the value of the USD is deliberate, slow and orderly. This picture remain untill the FED tightens interest rates. At that point, the rally in stocks will come to an end and we will head for a crash.
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