US Dollar & Gold: Charts don't lie !
Randy Buss
In the preceeding months we have seen that although there seems to be a direct correlation in the longer term between a falling US Dollar and a rising Gold price, this axiom does not always hold true. Undoubtedly they are closely linked, but an inverse correlation does not, and has not, always exist(ed).

In my analysis of Gold, yesterday, I received post from readers asking of this. Instead of asking "Why is it not so?," I would rather just look at the charts. Why? There, all information known to the market is provided, despite any purported manipulations of the US Dollar, or gold, or both. As well, the charts "don't lie," they follow their patterns quite according to the human actions and psychology which are ultimately behind them. Enough on that.

At first I believed a pennant formation had indeed formed on the long chart (yearly). But this could be misleading. Indeed, the critical area (purple area) the chart has broken upside. But charting-wise, this is likely not a pennant, as pennants tend to be of much shorter timeframes, not months. Hence, on closer inspection and thought, this is in my opinion an ascending triangle (AT) which behaves quite correctly as the volume starts to thin out at the apex. (see lower chart). Hence, we as traders, are given an indication that the US Dollar might have a bit further upswing in the near-to-medium term.

On my previous gold chart (posted yesterday), the room remaining in the apex of the symetrical triangle (ST) is near nil, but the indications from a charting perspective indicate a break to the upside out of the ST.

Hence, we could see the US Dollar and Gold both ascending in the short to medium term. This however does not negate the fact, that they are in opposite to one another over the longer term (USD bearish, Gold bullish) as can be seen on any longer-term charts respectively.

Note of caution : breakouts from STs or ATs are more reliable during the formation of the triangle. If a "right squeeze" towards the apex occurs, as we see in the gold chart I previously published, and the AT chart below (US Dollar), then I consider the breakout to be less reliable, since by definition, it must breakout from an ever decreasing apex.

For Gold, I see a close over 365$ as a major signal (today?) of further advancement to the next resistance area (380).

If the August-phenomena of major market turnarounds hold, then we shall definitely be in for interesting times ahead.


Randy Buss; BSc Engineering is an independent project manager for international projects.
rabuss@attglobal.net