Gold, GOLLLLLD!!!!!!

Most of the analysts I have heard talking about the reason for the rise in gold over the few weeks have been claiming that when volatility goes up so does gold. Others have been saying that it is moving closer to its inflation adjusted high (to about 2500).  Let’s examine that, shall we. 

On this three year chart we can clearly see that gold has been on a steady rise despite the level of volatility.  Each arrow points at peaks in the volatility index and we can see that even in between the 08-09 drop in the market gold was still just chugging higher.  So clearly it can’t be just the volatility.

Versus the dollar, there is no real correlation to the price and inflation either.  It seems that no matter what happens the price of gold just keeps going up.  How high will it go?  I have no idea.  The bottom line is that gold is a finite resource and we are running out of places to look for it.

At present I believe we are seeing a climax top.  The ADX indicator is in extremely over bought territory and the MACD is pointing straight up.  This rarely happens with anything.  I expect that we will see a short term pull back and consolidation before moving even higher.

Oil Vs. Dollar

                Just a little insight into the relationship of oil prices vs. the U.S. dollar.  As you can see by the chart below, the U.S. dollar and oil have an inverse relationship.  This explains the current drop in oil prices as we have had an increase in the value of the dollar.  We have heard a lot of different theories from the talking heads on TV about what has caused this move.  However, as you can see, it is technically just the inverse relationship.

So where does it go from here?  I believe that over the short term we will see an even larger spike in the U.S. dollar.  Right now we are seeing what is called a wedging pattern which is usually a sign of accumulation.  The ADX lines are moving towards a bearish alignment in the short term but are forming a longer term divergence.  The MACD has moved into positive territory and is also forming a divergence.  And the stochastic is forming a divergence with a short term roll over.  All this indicates that short term, we are going to see a downward move in the dollar.  Long term, it could go either way but our indicators say it will go up.  In short, I think the dollar will continue to rise and oil will fall.  Unfortunately this will force the FED’s hand and bring about QE3.