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The chicken or the egg? Which is which: gold or the dollar? My work is telling me to watch the $$$, and the rest will take care of itself. From a technical perspective, let's notice that the daily dollar index (DXY) has been consolidating at the high end of its Nov-Dec upleg, which has taken the form of a bullish continuation pattern. If my perception of the pattern proves accurate, then the DXY is on the verge of upside acceleration that will resume its Nov-Dec rally-- on the way to 80.00 next. Meanwhile, as the DXY has rested and digested in a narrow range, spot gold prices have recovered about 40% of the prior decline, from $1227.20 to $1074.00, back up to $1140. If the DXY spikes to the upside into a new upleg, then we should expect spot Gold prices -- and its corresponding SPDR Gold Shares ETF (NYSE: GLD) -- to reverse from the $1150 area (the 50% recovery resistance area of the Dec-Jan decline) and roll over into a nasty nosedive. That should press prices quickly towards a retest of $1074, which if violated should open a floodgate of long liquidation into the $1000 target zone thereafter. Right now, my optimal scenario calls for another potent upleg in the dollar. Let's see if the rest takes care of itself. MJP 1/07/10 2:50 PM ET ($1,133.40... 77.93)
Mike Paulenoff is author of www.MPTrader.com, a real-time diary of his technical analysis & trade alerts on ETFs for precious metals, energy, currencies, and an array of equity indices and sectors, including international markets, plus key ETF component stocks in sectors like technology, mining, and banking. Sign up for a Free 15-day Trial!
