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Correlation With US Dollar Shows Gold Is Still Bullish

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We may see the metal moving slowly higher rather than rallying immediately.

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Source: StockCharts.com

In my firm's previous commentary we summarized that the bullish analysis of gold is definitely still intact given the strikingly similar pattern in place back in August 2009, where we had some consolidation followed by a significant rally.

Please note that the similarity is visible not only in the price itself but also in the RSI and Stochastic indicators. Based on the above chart it seems that even if we're going to see gold move a little lower from here, it won't change the bullish implications of the pattern. Let's take a look at the short-term chart for more details.


Source: StockCharts.com

Looking at the short-term chart, don't anticipate for the move to be immediate. Sure, it may be the case that gold rallies right away (that's why I had mentioned opening long positions in metals), but based on the similarity to the late August 2009, it seems that we may see gold moving slowly higher instead of rallying immediately. This means that if we see a small correction that takes gold $20 lower or so, it shouldn't make you worried.

Summing up, the situation in gold is still bullish -- the technical analysis patterns are in place, and the strong negative correlation with the US Dollar serves as a confirmation.


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No positions in stocks mentioned.
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