Gold - New reason for optimism

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Shifting gears somewhat, it’s worth taking a look at the U.S. dollar again. As with interest rates, the health of the dollar is a key to future movements in many markets, including the two we’re most interested in: stocks and gold. Dollar bulls think this chart is bullish, while dollar bears see only weakness. To me, with no dog in this fight, it looks rather constructive. After putting in a double-bottom at 73, the dollar initiated a nice uptrend a couple of years ago. Since then, it has established a clear uptrend (as indicated by the blue line) and has broken through one of the two downtrend lines (indicated in maroon). It has also set up a potential triple-top breakout, which, if completed, would be very bullish action in itself, while also taking the dollar above its remaining downtrend line.

We’re now testing that uptrend line, but as long as it holds, the overall picture for the dollar is bullish. If we subsequently get a move to 85 or 86, that would give the stock market even more support, while keeping gold on the defensive. Of course, if the buck doesn’t do that and instead breaks convincingly under 80, that would imply trouble for the stock market and should give gold a real boost. Not surprisingly then, this is an important chart to monitor in the coming days and weeks.

We’re now testing that uptrend line, but as long as it holds, the overall picture for the dollar is bullish. If we subsequently get a move to 85 or 86, that would give the stock market even more support, while keeping gold on the defensive. Of course, if the buck doesn’t do that and instead breaks convincingly under 80, that would imply trouble for the stock market and should give gold a real boost. Not surprisingly then, this is an important chart to monitor in the coming days and weeks.

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