Change in Gold's relationship with US dollar

There is a very interesting pattern shift happening with the US dollar and gold. Previously, gold would act in an inverse manner to the US dollar, meaning that if the US dollar was declining, gold would rise. On the following chart we demonstrate this pattern in the blue box. In that box we can see how as the US dollar started its massive decline, gold moved in an uptrend. Then in 2008, the dollar rallied strongly while gold declined. But in the end of 2009, this inverse relationship has changed. As we can see in the red box on the chart, gold and the dollar both moved up in early 2010, and then they both corrected at the same time, before they both rallied recently. Clearly, gold and the dollar are now moving together, most likely in response to investors seeking “safe haven” investments.

We have been calling for gold to have a strong correction soon and still feel that this is possible, although it has been holding up well recently. If we get that correction in gold, it will be a great buying opportunity for those who have not yet established a position in gold and for the rest of us to increase our position in gold.

Our short term indicators are pointing to a correction down into early September when we could see gold fall below $1,100 an ounce. At this point we see it holding the $1,000 mark. After that correction, if it materializes, we are looking for gold to begin its next leg up and could explode to new record highs, most likely by the end of the year. In the next two years we see gold moving past $2,000 to $2,500 or higher. In the next 5 years we could see gold at $3,500 plus.