By Mike Paulenoff, MPTrader.com
Strangely, or counter-intuitively, the Dollar has strengthened (vs. the Euro) during a crisis precipitated by a US-derived financial and banking debacle! How could this be the case? Perhaps perceptions have emerged that Europe is in worse shape than the US? Perhaps in spite of everything, the world's investors still need to be in Dollars to access US Treasury paper? Or, perhaps, the Central Banks have coordinated efforts to support the Dollar during this financial panic to avert a Reserve Currency crisis too?
I really don't know what the reason is, although I do think the Dollar's strength is peculiar indeed. If anything, CONFIDENCE in U.S. backed investment paper of just about any grade should be of great concern to investors, institutions, and Central Bankers-- and to compensate for the slide in underlying confidence, gold purchases would seem to be the logical alternative.
Purely from a technical perspective, the enclosed comparison chart shows that DESPITE Dollar stength, gold prices are holding up extremely well, and have created a HUGE POSITIVE DIVERGENCE vis-a-vis the negative action in the Euro. For the time being, the relatively positive action in gold is telling me to remain long spot gold (the GLD) in anticipation of an upside breakout from its high-level consolidation between $920 and $860, which projects next to a test of the July high at $989.25. Only a decline that breaks $862 will compromise the still-positively divergent gold chart pattern.