CHARTWORKS - DEC 4, 2009
Gold and the US Dollar Index

Technical observations of RossClark@shaw.ca

Bob Hoye
Institutional Advisors
Posted Dec 8, 2009

A corrective rally in the Dollar Index to 76.90 should offer a buying opportunity in gold.

While it is true that the US gold price tends to move inversely to the Dollar the investment demand far outstrips the currency action. In the past eight years the US Dollar Index has declined by 61%. The Euro is up 78% from its lows, the Yen 55% and the Canadian Dollar by 53%. However, gold has appreciated by 365% in terms of the US Dollar. So much for the theory that it has been a weak dollar that has caused the gold rally.

(Click on images to enlarge)

However, the action of the dollar does offer guidance in establishing interim highs and lows in the gold price. When the Dollar is in a downtrend, such as recently, rallies back to the 20 & 50 week exponential moving averages present buying opportunities in gold. Such dollar strength generally sees the weekly RSI(14) move up into the mid to high 40’s.

For all the bad publicity that the US Dollar has received in the past month you would think that it was falling out of bed. However, this week’s low was only 1.3% below the close of 75.12 on October 21st.

The weekly MACD (12, 26, 9) has already turned up following the weekly Sequential Buy Setup on October 30th. Now we are getting an upside price reversal to confirm an interim low.

The declining wedge of the past five months is typical of action going into interim lows in the Dollar. A close above 75.27 (the midpoint of the last failed rally from74.67 to 75.88) and the resistance line would suggest that the wedge is ending and call for quick move up to the 20-week moving average.

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Dec 4, 2009
-Bob Hoye
Institutional Advisors
email: bobhoye@institutionaladvisors.com
website: www.institutionaladvisors.com

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