GoldMoney Alert - 26 July 2009

The Summer Doldrums Are Ending

The summer months are generally quiet as people focus on holidays, rather than markets. This year, however, is shaping up to be an exception because of a weak US dollar.

We can see from the above chart how the US Dollar Index has been slipping. The bear market rally that began last year has ended. More to the point, it looks like the long-term downtrend in the Dollar Index is resuming.

The Dollar Index closed Friday at 78.75, not far above its low of 78.40 made in June. Watch this June low. If the Dollar Index makes a new low, I expect the dollar’s decline to accelerate rapidly. A collapse in the dollar may prove to be the spark that sends gold higher, and over $1,000 per ounce.

The above gold chart is very powerful. An inverted "head & shoulders" pattern has been forming for more than one year. Normally, "H&S" patterns form at important bottoms when selling has exhausted itself. It is rare for an inverted "H&S" to form within an uptrend, and therefore it is extraordinary that one has now formed within gold’s decade-long uptrend. It is also unusual to see it forming a complex double right shoulder. But there is an important message here.

This pattern is telling us that the decline in gold last year after the Lehman collapse was a classic selling climax. Gold was dumped in the rush by hedge funds and others to de-leverage. That selling led to a bottom that was marked by emotion, not logic.

It has been my view that gold will climb above $1,000 this year and stay there. I thought it would happen in the first quarter, and while gold did reach $1,000, it failed to stay there. The next time I expect there will be a different result. Gold will hurdle $1,000 and keep climbing. That moment is rapidly approaching.

Published by GoldMoney
Copyright © 2009. All rights reserved.
Edited by James Turk

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