Dollar rallz over_

The rallty in the US Dollar began in Nov 2011 and is on the verge of being over. We have seen the top for the USD on Jan 15 or 16, the we saw the "kiss of death" rally on Feb 16 when the Dollar tried to rally above the 50 DMA, but bounced off the average. Now we see the Dollar testing its support level at 75.5.

Is gold ready for the breakout?

There are a number of interrelated quantities that I have been tracking. The gold price has been coming back from the low of 1,550 or so. The first question is; have we resumed the gold bull market rally, or are we seeing a reaction rally? The top graph shows the gold prices for the last two years. We see a confirmation of the breakout from the correction then we see a retrenchment and what appears to be a resumption today of the breakout. A confirmation of that will occur when gold closes above 1,770.

An important indicator of what people expect to happen to gold prices is what they expect to happen to the gold miners. The second graph down shows the XAU, the gold + silver miner index. We have two descending lines. The yellow color is the last and steeper drop in the index and the green color is a longer term descent. XAU has broken out of the steeper descent, but is yet to break out of the longer descent.

Another important determinant is the gold to oil ratio. Today this ratio is 16.5. Oil has closed above $105/bbl and is forecast to rise to $115. If it does close above $115, then it has little resistance to 140. The gold to oil ratio is important, because one drives the other. For example, gold going up had driven up oil prices. Now, it is oil prices that are pushing gold prices. At a gold to oil ratio of 16.5, a barrel of oil price of $150 would push gold price to 2,475. If the ratio goes to 27.5 and crude goes to $150, this would put gold at 4,125.

A second determinant is the ongoing debt crisis in Europe. The eyes are on Greece. This is a country that has been in a recession for 4 years. The results are scary. Unemployment among young Greeks is 50% and 25% of companies have gone bankrupt in the last 4 years. Greece's economy contracted 14% and is set to contract another 7%. The bailout of Greece is really a bailout of European banks.

Oil prices feed back on economic growth. A 10% rise in oil price is calculated to produce a half percent drop in our GDP. Iran is cutting oil to Europe and Saudi Arabia is cutting production to increase prices. Need I say it? Yes indeed! This will not end well!

Steady till...

It is time, once again, to review the evidence re the progression of the gold market. It has been twenty five weeks since gold hit a double top. Then it took a substantial correction. Someone else has figured out that the time it takes to reach a new high is proportional to the size of the correction. The high occured in August and 25 weeks has passed since then. The graphic analysis suggests an interval of 38-40 weeks untill the next high in gold price. This amounts to between 3 to 4 months more.

The first graph on top shows the gold price. The graph shows a breakout from the down pattern and a reaction to it. So, we wait to see if the next peak confirms the breakout.

The second graph shows the combined gold and silver issues. It, too, shows a breakout pattern, but then the graph goes back to the down trend line.

The next three graphs show two gold miners and a silver miner. We see the same pattern. Breakout waiting to be confirmed.

There are several reports that I will try to summerize. Many people and institutions have taken steps to have enough cash on hand to respond to what may come. The estimate is 7-9 Trillion dollars. No point investing it in Treasuries: the banks will give you 6% gain in 3 years and 9% loss during the same time because of inflation. The US Stock Market is the highest in 4 years, so there is nothing gained in buying stock. There are a number of possible events that could rock the boat. There is the real possibility of recession in Europe and even in the US. Should such occur, stocks will be clobbered, along with gold and miners. On the other hand, the ECB stands ready to inject $1T worth of Euros into the economies of Europr and the FED is ready to open the money spigots.

So, my calculations peg the start of the next big move in gold to start in about 3-4 months. Larry thinks so too.