The fact that gold has been unable to rally substantially with a tumbling dollar, down some 4% in the past 3 weeks, is worrying for the bulls. This is particularly noteworthy when we recall that gold fell by over 11% when the dollar rose by 5% in the preceding three weeks.
We suspect that a dollar rally is imminent and we will see another sharp fall in the gold price when this occurs. However, gold is trading at an important juncture here, trading right on the 50 DMA and the upper boundary of the down trend channel - if a dollar rally fails to materialise and gold moves above 1350, we could see a strong rally back up towards 1424 and beyond.
Equities are stalling, with Asian stock markets struggling with the news of debt problems and slowing demand in China and US markets pausing after a strong run back up to resistance near 1700 in the S&P. After a brief period of consolidation, we expect US markets to resume their bull run and make new highs in the coming months. This will limit any gains in gold, as further funds are diverted to equities in search of yield.
Today's video for subscribers looks at last week's trading action in more detail and our thoughts for the week.