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Gold Gains Ground Despite Dollar Rally

David Becker
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Gold Gains Ground Despite Dollar Rally

Gold remains within a large consolidation on the weekly chart, but the yellow metal is making some bullish waves with a surge on the daily chart. The weekly Spot Gold ($GOLD) is seen crossing the 1300 level at least a dozen times since June 2012. Overall, gold prices are in a consolidation range within a downtrend, and a consolidation within a trend is typically a continuation pattern. This means the consolidation is a bearish continuation pattern.

It is possible that a bearish descending triangle is taking shape. The lower highs show selling pressure coming in at lower price points. The equal lows represent the demand line. A break below support would break demand and signal a continuation lower. Long-term resistance in the 1350 area and would turn bullish on a close above 1360.

Fundamentally, gold may be breaking out because the situation with Russia is deteriorating. Note that gold surged even as the Dollar advanced this week. While Putin will not likely back down, the situation could turn into a long drawn out affair and the Dollar may be the ultimate arbiter for gold. The Euro Index ($XEU) in a clear downtrend and the Dollar Index ($USD) in an uptrend. The Euro is around 57% of the Dollar Index and the key currency cross to watch. As the weekly gold chart showed, there is a strong negative correlation between gold and the Dollar. Continued Dollar strength and Euro weakness, therefore, could ultimately be negative for gold. Because it is rather unusual to see both gold and the Dollar advance, further strength in both would signal that something is amiss.

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