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Firm Dollar Fails to Spook Gold

By Rick Ackerman Posted on February 22, 2010, 3:41 am EST Last Updated May 6, 2010, 6:20 am EDT

The price of gold has corrected 15% since Comex futures hit an all-time high of $1229 per ounce in early December. How much more weakness will it take for gold to finish basing for the next big move — a rally that we expect to carry into the mid-$1400s?  A definitive answer could come this week, since the U.S. dollar, which has been in a bear rally since Thanksgiving, is close to some key Hidden Pivot resistance points. If the dollar were to blow past them it would be akin to the groundhog seeing his shadow – i.e., yet more weeks of winter for gold investors. However, there is evidence to suggest that it might be winter of the mildest sort, since gold has begun to show resilience whenever the dollar rallies.

Gold-has-bucked

The graph above shows this.  Note that the price of gold declined more or less proportionally when the dollar started to rally in early December. Their inverse movement stayed pretty close until recently, with the Dollar Index rising 9.5% off its lows as gold futures fell by 8.7%. But starting about two weeks ago, gold began to rise even when the dollar was firm. To be sure, the dollar’s steep upward trajectory has flattened some since early February. But it has risen about 0.25% nonetheless, presumably consolidating for another thrust.  Despite this, gold has managed to eke out a 6.5% gain over the same time – a performance that should hearten investors who have patiently awaited an end to a correction that is now in its third month.

$1085 ‘Worst Case’

For the time being, though, the dollar appears bound higher. Hidden Pivot analysis suggests that the immediate upside potential of the Dollar Index is about 3.3%.  A corresponding decline in gold would bring the April Comex contract down to $1085 – hardly a disaster, considering that gold has already been down as low as $1044 since the December top. If that’s as bad as it gets, it should put no great strain on the nerves of gold investors, even if it tests everyone’s patience.

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  • FranSix February 24, 2010, 6:46 am

    The whole thing about the gold markets right now is the non-confirmation in the miners to gold price rises.

    So advance in the GDX vs. bullion should be called for.

  • Senor Cuidado February 23, 2010, 11:50 am

    Perhaps regular folks should simply accumulate gold throughout their lives as a form of rock solid savings. In most countries around the world that concept is understood. But in the country with “world reserve currency” status it does makes sense that paper money would gradually take on an erroneous perception of being good as gold.

    Re perceptions: Hey, the U.S. gold reserve hasn’t been audited in fifty years or so. I wonder if that fact were blasted across the news headlines for a week if then perceptions of our world reserve currency status might change among the masses. After all, what does it mean when an area of the government goes without an audit? I say it means that that department can’t afford to have an audit performed, because the audit results would be too damaging.

  • Rich February 23, 2010, 1:04 am

    Gold and HUI went red today.
    Maybe better red than dead.
    That we think they may be dead
    suggested by gold ramming up to
    $1130.90 to trigger a flip flop on
    the PnF chart from $930 to $1300,
    then dropping down to 1114.20 on
    reduced liquidity.

    (Larry Amernick).

    We saw the PnF flip flop before with
    CDE ramping up silver production
    earnings in 2008, and PnF suddenly
    going from higher to targeting zero
    when it was time to buy
    at $3.60 (36 cents before 1:10 reverse split),
    one of the few penny stocks that worked out
    sixfold.
    Now a mirror image with gold.
    One day does not a trend make.
    But since Peter Grandich twice reneged on his
    gold bull bet and three times deleted acceptance posts,
    perhaps all gold bets are off…

  • Mark Loeffler February 22, 2010, 4:53 pm

    The term “firm dollar” is laughable. Hasn’t been firm in 91 years. However, it is relevant that during these microbumps along the way up for gold I guess the tem “firm dollar” could be used if we add the terms “for the moment” afterwards. It just made me laugh when I read it. no big deal. Have a great week.

    Mark

    &&&&&

    Firm is a relative term, Mark. RA

  • Martin Snell February 22, 2010, 3:33 pm

    Meanwhile in Euros gold has started to hit new all time highs.

  • Daman Prakash February 22, 2010, 7:37 am

    “Mechanical detatchment” is the mantra well learnt from Rick.

    Price action alone detrmines the direction of trade. Whether Gold is in tandem with cuurencies/equities/silver or not is just another point in our plan of action. Suffice to observe that when we closely watch the price action in immediate past and co-relate with dollar, there has been a time for a short period when dollar fall failed to lift Gold.

    Those who follow strictly adhere to advice have already placed subjectivity in the unconscious memory part of their brain.


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